CNB FINANCIAL CORP/PA - Quarter Report: 2022 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-39472

CNB FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)


Pennsylvania						25-1450605
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

1 South Second Street

P.O. Box 42

Clearfield, Pennsylvania 16830

(Address of principal executive offices)

Registrant’s telephone number, including area code, (814) 765-9621

Securities registered pursuant to Section 12(b) of the Act:

Title of Class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, no par value

CCNE

The NASDAQ Stock Market LLC

Depositary Shares (each representing a 1/40th interest in a share of 7.125% Series A Non-Cumulative, perpetual preferred stock)

CCNEP

The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

☐

Accelerated Filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

The number of shares outstanding of the issuer’s common stock as of August 2, 2022:

COMMON STOCK, NO PAR VALUE PER SHARE: 16,860,138 SHARES

Table of Contents

INDEX

PART I.

FINANCIAL INFORMATION


			Page Number

ITEM 1 – Financial Statements

Condensed Consolidated Balance Sheets June 3 0 , 2022 (unaudited) and December 31, 2021 (audited)			1

Condensed Consolidated Statements of Income – Three and six months ended June 3 0 , 2022 and 2021 (unaudited)			2

Condensed Consolidated Statements of Comprehensive Income – Three and six months ended June 3 0 , 2022 and 2021 (unaudited)			3

Condensed Consolidated Statements of Changes in Shareholders' Equity – Three and six months ended J une 3 0 , 2022 and 2021 (unaudited)			4

Condensed Consolidated Statements of Cash Flows – Three and six months ended J une 30 , 2022 and 2021 (unaudited)			6

Notes to Condensed Consolidated Financial Statements			8

ITEM 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations			44

ITEM 3 – Quantitative and Qualitative Disclosures about Market Risk			68

ITEM 4 – Controls and Procedures			69

PART II. OTHER INFORMATION

ITEM 1 – Legal Proceedings			70

ITEM 1A – Risk Factors			70

ITEM 2 – Unregistered Sales of Equity Securities and Use of Proceeds			70

ITEM 3 – Defaults Upon Senior Securities			70

ITEM 4 – Mine Safety Disclosures			70

ITEM 5 – Other Information			70

ITEM 6 – Exhibits			71

Signatures			72

Table of Contents

Forward-Looking Statements and Factors that Could Affect Future Results

The information below includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, with respect to the financial condition, liquidity, results of operations, future performance and business of CNB Financial Corporation (“CNB”). These forward-looking statements are intended to be covered by the safe harbor for "forward-looking statements" provided by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are those that are not historical facts. Forward-looking statements include statements with respect to beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions that are subject to significant risks and uncertainties and are subject to change based on various factors (some of which are beyond CNB’s control). Forward-looking statements often include the words "believes," "expects," "anticipates," "estimates," "forecasts," "intends," "plans," "targets," "potentially," "probably," "projects," "outlook" or similar expressions or future conditional verbs such as "may," "will," "should," "would" and "could." CNB’s actual results may differ materially from those contemplated by the forward-looking statements, which are neither statements of historical fact nor guarantees or assurances of future performance.

Currently, one of the most significant factors that could cause actual outcomes to differ materially from our forward-looking statements is the potential adverse effect of the current pandemic of the novel coronavirus, or COVID-19, on the financial condition, results of operations, cash flows and performance of CNB, our customers and the global economy and financial markets. The COVID-19 pandemic has impacted us and our customers significantly, and the extent that it continues to impact us and our customers will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic and its impact on our customers and demand for financial services, the actions governments, businesses and individuals take in response to the pandemic, the direct and indirect economic effects of the pandemic and containment measures, treatment developments, public adoption rates of COVID-19 vaccines, including booster shots, and their effectiveness against emerging variants of COVID-19, such as the Delta and Omicron variants, and the pace of recovery when the COVID-19 pandemic subsides, among others. Moreover, investors are cautioned to interpret many of the risks identified under Part I, "Item 1A. Risk Factors" in CNB's Annual Report on Form 10-K for the year ended December 31, 2021 as being heightened as a result of the ongoing and numerous adverse impacts of the COVID-19 pandemic.

Additional factors that could cause the actual results to differ materially from the statements, include, but are not limited to, (i) changes in general business, industry or economic conditions or competition; (ii) changes in any applicable law, rule, regulation, policy, guideline or practice governing or affecting financial holding companies and their subsidiaries or with respect to tax or accounting principles or otherwise; (iii) adverse changes or conditions in capital and financial markets; (iv) changes in interest rates; (v) higher than expected costs or other difficulties related to integration of combined or merged businesses; (vi) the effects of business combinations and other acquisition transactions, including the inability to realize our loan and investment portfolios; (vii) changes in the quality or composition of our loan and investment portfolios; (viii) adequacy of loan loss reserves; (ix) increased competition; (x) loss of certain key officers; (xi) deposit attrition; (xii) rapidly changing technology; (xiii) unanticipated regulatory or judicial proceedings and liabilities and other costs; (xiv) changes in the cost of funds, demand for loan products or demand for financial services; and (xv) other economic, competitive, governmental or technological factors affecting our operations, markets, products, services and prices. Such developments could have an adverse impact on CNB's financial position and results of operations.

The forward-looking statements contained herein are based upon management’s beliefs and assumptions. Any forward-looking statement made herein speaks only as of the date on which it is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. CNB undertakes no obligation to publicly update or revise any forward-looking statements included in this Quarterly Report on Form 10-Q, whether as a result of new information, future events or otherwise, except to the extent required by law. In light of these risks, uncertainties and assumptions, the forward-looking events discussed might not occur and you should not put undue reliance on any forward-looking statements.

Table of Contents

Part I Financial Information

Item 1. Financial Statements

CONDENSED CONSOLIDATED BALANCE SHEETS

Dollars in thousands, except share data



	(unaudited)
	June 30, 2022		December 31, 2021
ASSETS
Cash and due from banks	$	61,585	$	42,440
Interest-bearing deposits with Federal Reserve	217,776		684,306
Interest-bearing deposits with other financial institutions	4,793		5,452
Total cash and cash equivalents	284,154		732,198
Debt securities available-for-sale, at fair value(amortized cost of $450,904 and $698,085, respectively)	404,407		697,191
Debt securities held-to-maturity, at amortized cost (fair value $389,933 and $0, respectively)	413,310		0
Equity securities	9,539		10,366
Loans held for sale	843		849
Loans receivable
PPP loans, net of deferred processing fees	2,287		45,203
Syndicated loans	153,154		125,761
Loans	3,754,312		3,463,828

Total loans receivable	3,909,753		3,634,792
Less: allowance for credit losses	(40,543)		(37,588)
Net loans receivable	3,869,210		3,597,204
FHLB and other restricted stock holdings and investments	24,484		23,276
Premises and equipment, net	62,990		61,659
Operating lease right-of-use assets	25,471		19,928
Bank owned life insurance	103,723		99,719
Mortgage servicing rights	1,881		1,664
Goodwill	43,749		43,749
Core deposit intangible, net	410		460
Accrued interest receivable and other assets	55,144		40,676
Total Assets	$	5,299,315	$	5,328,939
LIABILITIES AND SHAREHOLDERS’ EQUITY
Noninterest-bearing demand deposits	$	851,172	$	792,086
Interest-bearing demand deposits	1,147,376		1,079,336
Savings	2,398,995		2,457,745
Certificates of deposit	304,277		386,452
Total deposits	4,701,820		4,715,619


Subordinated debentures	20,620		20,620
Subordinated notes, net of unamortized issuance costs	83,812		83,661
Operating lease liabilities	26,785		21,159
Accrued interest payable and other liabilities	42,690		45,033
Total liabilities	4,875,727		4,886,092
Commitments and contingent liabilities
Preferred stock, Series A non-cumulative perpetual, $0 par value; $1,000 liquidation preference; shares authorized 60,375; Shares issued 60,375 at June 30, 2022 and December 31, 2021	57,785		57,785
Common stock, no par value; 50,000,000 shares authorized; Shares issued 16,978,057 at June 30, 2022 and 16,978,057 at December 31, 2021	0		0
Additional paid in capital	126,986		127,351
Retained earnings	283,204		260,582
Treasury stock, at cost (118,471 shares at June 30, 2022 and 122,995 shares December 31, 2021)	(3,026)		(2,477)
Accumulated other comprehensive loss	(41,361)		(394)
Total shareholders’ equity	423,588		442,847
Total Liabilities and Shareholders’ Equity	$	5,299,315	$	5,328,939

See Notes to Condensed Consolidated Financial Statements

Table of Contents

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)

Dollars in thousands, except per share data



	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
INTEREST AND DIVIDEND INCOME:
Loans receivable including fees
Interest and fees on loans receivable	$	44,666	$	38,895	$	85,816	$	77,303
Processing fees on PPP loans	559		1,639		1,796		4,370
Securities:
Taxable	4,254		2,679		7,868		5,340
Tax-exempt	227		270		446		621
Dividends	35		45		69		189
Total interest and dividend income	49,741		43,528		95,995		87,823
INTEREST EXPENSE:
Deposits	2,487		4,072		5,193		8,352
Finance lease liabilities	5		6		10		12
Subordinated notes and debentures (includes $51, $62, $118 and $131 accumulated other comprehensive income reclassification for change in fair value of interest rate swap agreements, respectively)	948		1,145		1,874		2,033
Total interest expense	3,440		5,223		7,077		10,397
NET INTEREST INCOME	46,301		38,305		88,918		77,426
PROVISION FOR CREDIT LOSS EXPENSE	2,905		1,967		4,548		4,089
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSS EXPENSE	43,396		36,338		84,370		73,337
NON-INTEREST INCOME:
Service charges on deposit accounts	1,771		1,446		3,528		2,794
Other service charges and fees	784		601		1,439		1,091
Wealth and asset management fees	1,803		1,765		3,586		3,287
Net realized gains on available-for-sale securities (includes $0, $0, $651 and $0 accumulated other comprehensive income reclassifications for net realized gains on available-for-sale securities, respectively)	0		0		651		0
Net realized and unrealized gains (losses) on equity securities	(641)		350		(1,035)		470
Mortgage banking	292		536		767		1,771
Bank owned life insurance	1,390		504		2,084		1,444
Card processing and interchange income	1,992		2,079		3,801		3,913
Other	755		576		2,979		1,326
Total non-interest income	8,146		7,857		17,800		16,096
NON-INTEREST EXPENSES:
Compensation and benefits	16,771		13,518		33,759		28,091
Net occupancy expense	3,335		2,935		6,565		6,204

Technology expense	4,024		2,888		7,396		5,558
State and local taxes	1,037		1,029		2,085		2,046
Legal, professional, and examination fees	1,176		897		2,013		2,050
Advertising	537		549		1,157		830
FDIC insurance premiums	710		557		1,433		1,173
Dues and subscriptions	534		446		1,134		899
Card processing and interchange expenses	1,256		1,408		2,285		2,088

Other	3,229		2,738		6,674		5,830
Total non-interest expenses	32,609		26,965		64,501		54,769
INCOME BEFORE INCOME TAXES	18,933		17,230		37,669		34,664
INCOME TAX EXPENSE (includes $(11), $(14), $113 and $(28) income tax expense from reclassification items, respectively)	3,495		3,240		6,986		6,493
NET INCOME	15,438		13,990		30,683		28,171
PREFERRED STOCK DIVIDENDS	1,075		1,075		2,150		2,150
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS	$	14,363	$	12,915	$	28,533	$	26,021

PER COMMON SHARE DATA:
Basic Earnings Per Common Share	$	0.85	$	0.76	$	1.69	$	1.54
Diluted Earnings Per Common Share	$	0.85	$	0.76	$	1.69	$	1.54

Cash Dividends Declared	$	0.175	$	0.170	$	0.350	$	0.340

See Notes to Condensed Consolidated Financial Statements

Table of Contents

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited)

Dollars in thousands



	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
NET INCOME	$	15,438	$	13,990	$	30,683	$	28,171
Other comprehensive income (loss), net of tax:
Net change in fair value of derivative instruments:
Unrealized gain on interest rate swaps, net of tax $(18), $0, $(60) and $(8), respectively	70		2		228		31
Reclassification adjustment for losses recognized in earnings, net of tax $(11), $(14), $(24) and $(28), respectively	40		48		94		103
	110		50		322		134
Net change in debt securities:
Unrealized holding gains (losses) on available-for-sale securities arising during the period, net of tax of $3,866, $(518), $10,936 and $1,933, respectively	(14,546)		1,950		(41,146)		(7,264)
Amortization of unrealized gains from held-to-maturity securities, net of tax of $(112), $0, $(98) and $0, respectively	422		0		371		0
Reclassification adjustment for realized losses included in net income, net of tax of $0, $0, $137 and $0, respectively	0		0		(514)		0
	(14,124)		1,950		(41,289)		(7,264)


Other comprehensive income (loss)	(14,014)		2,000		(40,967)		(7,130)
COMPREHENSIVE INCOME (LOSS)	$	1,424	$	15,990	$	(10,284)	$	21,041

See Notes to Condensed Consolidated Financial Statements

Table of Contents

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (unaudited)

Dollars in thousands, except share and per share data


	Preferred Stock		Additional Paid-In Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Total Share- holders’ Equity
Balance, April 1, 2022	$	57,785	$	126,703	$	271,792	$	(2,998)	$	(27,347)	$	425,935
Net income					15,438						15,438
Other comprehensive loss									(14,014)		(14,014)
Forfeiture of restricted stock award grants (1,090 shares)			27				(27)				0


Stock-based compensation expense			256								256




Purchase of treasury stock for the purpose of tax withholding related to restricted stock award vesting (22 shares)							(1)				(1)



Preferred cash dividend declared					(1,075)						(1,075)
Cash dividends declared ($0.175 per common share)					(2,951)						(2,951)
Balance, June 30, 2022	$	57,785	$	126,986	$	283,204	$	(3,026)	$	(41,361)	$	423,588

Balance, April 1, 2021	$	57,785	$	126,572	$	228,973	$	(1,671)	$	5,944	$	417,603
Net income					13,990						13,990
Other comprehensive gain									2,000		2,000



Stock-based compensation expense			303								303


Purchase of treasury stock for the purpose of tax withholding related to restricted stock award vesting (65 shares)							(1)				(1)

Preferred cash dividend declared					(1,075)						(1,075)
Cash dividends declared ($0.170 per common share)					(2,871)						(2,871)
Balance, June 30, 2021	$	57,785	$	126,875	$	239,017	$	(1,672)	$	7,944	$	429,949

Table of Contents

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (unaudited) (continued)

Dollars in thousands, except share and per share data


	Preferred Stock		Additional Paid-In Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Total Share- holders’ Equity
Balance, January 1, 2022	$	57,785	$	127,351	$	260,582	$	(2,477)	$	(394)	$	442,847
Net income					30,683						30,683
Other comprehensive loss									(40,967)		(40,967)
Forfeiture of restricted stock award grants (1,090 shares)			27				(27)				0
Restricted stock award grants (56,159 shares)			(976)				976				0
Performance based restricted stock award grants (11,895 shares)			(173)				173				0
Stock-based compensation expense			757								757



Purchase of treasury stock (50,166 shares)							(1,342)				(1,342)
Purchase of treasury stock for the purpose of tax withholding related to restricted stock award vesting (7,568 shares)							(203)				(203)
Purchase of treasury stock for the purpose of tax withholding related to performance based restricted stock award vesting (4,706 shares)							(126)				(126)


Preferred cash dividend declared					(2,150)						(2,150)
Cash dividends declared ($0.35 per common share)					(5,911)						(5,911)
Balance, June 30, 2022	$	57,785	$	126,986	$	283,204	$	(3,026)	$	(41,361)	$	423,588

Balance, January 1, 2021	$	57,785	$	127,518	$	218,727	$	(2,967)	$	15,074	$	416,137
Net income					28,171						28,171
Other comprehensive loss									(7,130)		(7,130)
Forfeiture of restricted stock award grants (1,578 shares)			35				(35)				0
Restricted stock award grants (50,106 shares)			(1,228)				1,228				0
Performance based restricted stock award grants (10,587 shares)			(262)				262				0
Stock-based compensation expense			812								812


Purchase of treasury stock for the purpose of tax withholding related to restricted stock award vesting (6,663 shares)							(140)				(140)
Purchase of treasury stock for the purpose of tax withholding related to performance based restricted stock award vesting (941 shares)							(20)				(20)
Preferred cash dividend declared					(2,150)						(2,150)
Cash dividends declared ($0.34 per common share)					(5,731)						(5,731)
Balance, June 30, 2021	$	57,785	$	126,875	$	239,017	$	(1,672)	$	7,944	$	429,949

See Notes to Condensed Consolidated Financial Statements

Table of Contents

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

Dollars in thousands



	Six Months Ended June 30,
	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	30,683	$	28,171
Adjustments to reconcile net income to net cash provided by operations:
Provision for credit loss expense	4,548		4,089
Depreciation and amortization of premises and equipment, operating leases assets, core deposit intangible, and mortgage servicing rights	3,483		3,390
Accretion of securities, deferred loan fees and costs, net yield and credit mark on acquired loans, and unearned income	(1,741)		(1,058)
Net amortization of deferred costs on borrowings	151		25
Accretion of deferred PPP processing fees	(1,796)		(4,370)
Net realized gains on sales of available-for-sale securities	(651)		0
Net realized and unrealized (gains) losses on equity securities	1,035		(470)
Gain on sale of loans receivable	(930)		(1,568)
Net losses on dispositions of premises and equipment and foreclosed assets	40		245
Proceeds from sale of loans receivable	17,367		35,912
Origination of loans held for sale	(23,168)		(42,030)
Income on bank owned life insurance	(1,254)		(1,034)
Gain on bank owned life insurance (death benefit proceeds in excess of cash surrender value)	(830)		(410)
Restricted stock compensation expense	757		812

Changes in:
Accrued interest receivable and other assets	(13,770)		(1,592)
Accrued interest payable, lease liabilities, and other liabilities	7,891		833
NET CASH PROVIDED BY OPERATING ACTIVITIES	21,815		20,945
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities, prepayments and calls of available-for-sale securities	47,229		87,541
Proceeds from sales of available-for-sale securities	22,164		0
Purchase of available-for-sale securities	(43,055)		(190,818)
Proceeds from maturities, prepayments and calls of held-to-maturity securities	14,707		0
Purchases of held-to-maturity securities	(213,853)		0

Purchase of equity securities	(208)		(201)

Net increase in loans receivable	(265,410)		(87,969)
Purchase of bank owned life insurance	(2,750)		(22,000)
Proceeds from death benefit of bank owned life insurance policies	0		1,390

Redemption (purchase) of FHLB, other equity, and restricted equity interests	(1,208)		(460)
Purchase of premises and equipment	(3,991)		(2,463)
Proceeds from the sale of premises and equipment and foreclosed assets	47		518
NET CASH USED BY INVESTING ACTIVITIES	(446,328)		(214,462)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in:
Checking, money market and savings accounts	68,376		355,307
Certificates of deposit	(82,175)		(32,286)

Purchase of treasury stock	(1,671)		(160)
Cash dividends paid, common stock	(5,911)		(5,731)
Cash dividends paid, preferred stock	(2,150)		(2,150)



Proceeds from issuance of subordinated notes, net of issuance costs	0		83,516



NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES	(23,531)		398,496
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(448,044)		204,979
CASH AND CASH EQUIVALENTS, Beginning	732,198		532,694
CASH AND CASH EQUIVALENTS, Ending	$	284,154	$	737,673

Table of Contents

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (continued)

Dollars in thousands






























































	Six Months Ended June 30,
	2022		2021
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	8,530	$	10,293
Income taxes	6,958		5,582
SUPPLEMENTAL NONCASH DISCLOSURES:
Transfers to other real estate owned	$	0	$	314
Transfers from loans held for sale to loans held for investment	6,352		7,044
Transfers from loans held for investment to loans held for sale	0		1,798
Transfers from available-for-sale to held-to-maturity	220,757		0
Grant of restricted stock awards from treasury stock	976		1,228
Grant of performance based restricted stock awards from treasury stock	173		262
Restricted stock forfeiture	27		0

Lease liabilities arising from obtaining right-of-use assets	6,188		0

See Notes to Condensed Consolidated Financial Statements

Table of Contents

CNB FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

CNB Financial Corporation (the "Corporation") is headquartered in Clearfield, Pennsylvania, and provides a full range of banking and related services through its wholly owned subsidiary, CNB Bank (the "Bank"). In addition, the Bank provides wealth and asset management services, including the administration of trusts and estates, retirement plans, and other employee benefit plans as well as a full range of wealth management services. The Bank serves individual and corporate customers and is subject to competition from other financial institutions and intermediaries with respect to these services. In addition to the Bank, the Corporation also operates a consumer discount loan and finance business through its wholly owned subsidiary, Holiday Financial Services Corporation ("Holiday"). The Corporation and its other subsidiaries are subject to examination by federal and state regulators. The Corporation’s market area is primarily concentrated in the Central and Northwest regions of the Commonwealth of Pennsylvania, the Central and Northeast regions of the state of Ohio, Western New York and Southwest Virginia.

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared pursuant to rules and regulations of the SEC and in compliance with U.S. generally accepted accounting principles ("GAAP"). Because this report is based on an interim period, certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with GAAP have been condensed or omitted.

In the opinion of management of the registrant, the accompanying condensed consolidated financial statements as of June 30, 2022 and for the three and six months ended June 30, 2022 and 2021 include all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the financial condition and the results of operations for the periods presented. The financial performance reported for the Corporation for the three and six months ended June 30, 2022 is not necessarily indicative of the results to be expected for the full year. This information should be read in conjunction with the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2021 (the "2021 Form 10-K"). Certain amounts appearing in the condensed consolidated financial statements and notes thereto for prior periods have been reclassified to conform with the current presentation. The reclassifications had no effect on net income or shareholders’ equity as previously reported. Dollar amounts in tables are stated in thousands, except for per share amounts.

Risks and Uncertainties

The worldwide spread of COVID-19 has created significant uncertainty in the global economy. The ultimate impact of the COVID-19 pandemic and the extent to which the COVID-19 pandemic and the related government responses impact the Corporation’s business, results of operations and financial condition will depend on future developments, which are highly uncertain and difficult to predict.

The Corporation's business is dependent upon the willingness and ability of its employees and customers to conduct banking and other financial transactions. If the global response to contain the COVID-19 pandemic requires further restrictive measures or is unsuccessful, the Corporation could experience a material adverse effect on its business, financial condition, results of operations and cash flows. Since the extent to which the COVID-19 pandemic impacts its operations will depend on future developments that are highly uncertain, the Corporation cannot estimate the impact on its business, financial condition or near or long-term financial or operational results with reasonable certainty. Accordingly, the Corporation is disclosing potentially material items of which it is aware.

Use of Estimates

To prepare financial statements in conformity with GAAP, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided and future results could differ.

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Operating Segments

While the Corporation monitors the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a Corporation-wide basis, and operating segments are aggregated into one as operating results for all segments are similar. Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable operating segment.

Debt Securities

Debt securities are classified as held to maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity. Debt securities are classified as available for sale when they might be sold before maturity. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income, net of tax.

Interest income includes amortization of purchase premium or discount. Premiums and discounts on securities are amortized on the level-yield method without anticipating prepayments, except for mortgage backed securities where prepayments are anticipated. Gains and losses on sales are recorded on the settlement date and determined using the specific identification method.

The Corporation has made a policy election to exclude accrued interest from the amortized cost basis of debt securities and report accrued interest separately in accrued interest receivable and other assets in the condensed consolidated balance sheets. A debt security is placed on nonaccrual status at the time any principal or interest payments become more than 90 days delinquent or if full collection of interest or principal becomes uncertain. Accrued interest for a security placed on nonaccrual is reversed against interest income. There was no accrued interest related to debt securities reversed against interest income for the three and six months ended June 30, 2022 and 2021.

2. RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Standards Adopted in 2021

In August 2018, the FASB issued ASU 2018-14, "Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans." ASU 2018-14 amends ASC 715-20, "Compensation - Retirement Benefits - Defined Benefit Plans - General." The amended guidance modifies the disclosure requirements for employers that sponsor defined benefit pension or other post-retirement plans by removing and adding certain disclosures for these plans. The eliminated disclosures include (a) the amounts in accumulated Other Comprehensive Income expected to be recognized in net periodic benefit costs over the next fiscal year, and (b) the effects of a one percentage point change in assumed health care cost trend rates on the net periodic benefit costs and the benefit obligation for post-retirement health care benefits. Additional disclosures include descriptions of significant gains and losses affecting the benefit obligation for the period. ASU 2018-14 was effective for the Corporation on January 1, 2021 and did not have a material impact on its consolidated financial statements and related disclosures.

In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes." These amendments remove specific exceptions to the general principles in Topic 740 in GAAP. It eliminates the need for an organization to analyze whether the following apply in a given period: exception to the incremental approach for intraperiod tax allocation; exceptions to accounting for basis differences where there are ownership changes in foreign investments; and exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses. It also improves financial statement preparers' application of income tax- related guidance and simplifies GAAP for: franchise taxes that are partially based on income; transactions with a government that result in a step up in the tax basis of goodwill; separate financial statements of legal entities that are not subject to tax; and enacts changes in tax laws in interim periods. The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted. ASU 2019-12 was effective for the Corporation on January 1, 2021 and did not have a material impact on its consolidated financial statements and related disclosures.

In January 2020, the FASB issued ASU 2020-01, "Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815." ASU 2020-01 represents changes to clarify certain interactions between the guidance to account for certain equity securities under Topic 321, the guidance to account for investments under the equity method of accounting in Topic 323, and the guidance in Topic 815. These amendments improve current U.S. GAAP by reducing diversity in practice and increasing comparability of the accounting for these transactions. ASU 2020-01 was effective for the Corporation on January 1, 2021 and did not have a material impact on its consolidated financial statements and related disclosures.

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In October 2020, the FASB issued ASU 2020-08, "Codification Improvements to Subtopic 310-20, Receivables - Nonrefundable Fees and Other Costs." ASU 2020-08 clarifies that an entity should reevaluate whether a callable debt security is within the scope of paragraph 310-20-35-33 for each reporting period. ASU 2020-08 was effective for the Corporation on January 1, 2021 and did not have a material impact on its consolidated financial statements and related disclosures.

In August 2021, FASB issued ASU 2021-06, "Presentation of Financial Statements (Topic 205), Financial Services—Depository and Lending (Topic 942), and Financial Services—Investment Companies (Topic 946)." ASU 2021-06 updates the codification to align with SEC Final Rule Releases No. 33-10786 and No. 33-10835. Specific to financial institutions, these SEC releases updated required annual statistical disclosures. The amendments in ASU 2021-06 were effective immediately. The updates to the statistical disclosures are reflected in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2021, to align with this guidance.

Accounting Pronouncements Pending Adoption

In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." ASU 2020-04 provides optional expedients and exceptions for accounting related to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. ASU 2020-04 applies only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform and do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The amendments in this update are effective for all entities as of March 12, 2020 through December 31, 2022. The Corporation is currently evaluating the effect of the reference rate reform on its consolidated financial statements.

In January 2021, the FASB issued ASU 2021-01, "Reference Rate Reform (Topic 848)." ASU 2021-01 expands and clarifies the scope of ASU No. 2020-04 to include derivatives affected by changes in interest rates used for margining, discounting, or contract price alignment, commonly referred to as the “discounting transaction.” Derivatives impacted by the discounting transaction will be eligible for certain optional expedients and exceptions related to contract modifications and hedge accounting as defined in Topic 848. The amendments in this update are effective for all entities as of March 12, 2020 through December 31, 2022. The Corporation is currently evaluating the effect of the reference rate reform on its consolidated financial statements and related disclosures.

In March 2022, the FASB issued ASU No. 2022-02, "Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures." This ASU eliminates the separate recognition and measurement guidance for Troubled Debt Restructurings ("TDRs") by creditors. The elimination of the TDR guidance may be adopted prospectively for loan modifications after adoption or on a modified retrospective basis, which would also apply to loans previously modified, resulting in a cumulative effect adjustment to retained earnings in the period of adoption for changes in the allowance for credit losses. This guidance is effective for the Corporation for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted. The Corporation is evaluating the effect that ASU 2022-02 will have on its consolidated financial statements and related disclosures.

In June 2022, FASB issued ASU No. 2022-03, "Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions." In this ASU, a contractual restriction on the sale of an equity security is not considered in measuring the security's fair value. The ASU also requires certain disclosures for equity securities that are subject to contractual restrictions. This guidance is effective for the Corporation for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, with early adoption permitted. The Corporation is evaluating the effect that ASU 2022-03 will have on its consolidated financial statements and related disclosures.

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3. SECURITIES

Debt securities available-for-sale ("AFS") at June 30, 2022 and December 31, 2021 are as follows:


	June 30, 2022								December 31, 2021
	Amortized		Unrealized				Fair		Amortized		Unrealized				Fair
	Cost		Gains		Losses		Value		Cost		Gains		Losses		Value
U.S. Government sponsored entities	$	2,278	$	0	$	(67)	$	2,211	$	110,788	$	2,728	$	(1,768)	$	111,748
State & political subdivisions	116,408		147		(13,046)		103,509		103,232		2,162		(1,682)		103,712
Residential & multi-family mortgage	273,603		114		(29,204)		244,513		437,021		4,127		(6,513)		434,635
Corporate notes & bonds	42,669		27		(3,616)		39,080		28,257		250		(443)		28,064
Pooled SBA	15,946		9		(861)		15,094		18,787		283		(38)		19,032

Total	$	450,904	$	297	$	(46,794)	$	404,407	$	698,085	$	9,550	$	(10,444)	$	697,191

Debt securities held-to-maturity ("HTM") at June 30, 2022 and December 31, 2021 are as follows:


	June 30, 2022								December 31, 2021
	Amortized		Unrealized				Fair		Amortized		Unrealized				Fair
	Cost		Gains		Losses		Value		Cost		Gains		Losses		Value
U.S. Government sponsored entities	$	307,634	$	0	$	(18,327)	$	289,307	$	0	$	0	$	0	$	0
Residential & multi-family mortgage	105,676		0		(5,050)		100,626		0		0		0		0





Total	$	413,310	$	0	$	(23,377)	$	389,933	$	0	$	0	$	0	$	0

The Corporation elected to transfer 23 AFS securities with an aggregate fair value of $101.1 million to a classification of HTM on January 1, 2022. In accordance with FASB ASC 320-10-55-24, the transfer from AFS to HTM must be recorded at the fair value of the AFS securities at the time of transfer. The net unrealized holding gain of $373 thousand, net of tax, at the date of transfer was retained in accumulated other comprehensive income (loss), with the associated pre-tax amount retained in the carrying value of the HTM securities. Such amounts will be amortized to comprehensive income over the remaining life of the securities.

The Corporation elected to transfer 51 AFS securities with an aggregate fair value of $112.6 million to a classification of HTM on April 1, 2022. The net unrealized holding loss of $6.0 million, net of tax, at the date of transfer was retained in accumulated other comprehensive income (loss), with the associated pre-tax amount retained in the carrying value of the HTM securities. Such amounts will be amortized to comprehensive income over the remaining life of the securities.

Information pertaining to security sales on AFS securities is as follows:


	Proceeds		Gross Gains		Gross Losses
Three months ended June 30, 2022	$	0	$	0	$	0
Three months ended June 30, 2021	0		0		0
Six months ended June 30, 2022	22,164		651		0
Six months ended June 30, 2021	0		0		0

The tax provision related to these net realized gains was zero and $137 thousand for the three and six months ended June 30, 2022 and zero during the three and six months ended June 30, 2021, respectively.

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The table below illustrates the maturity distribution of debt securities at amortized cost and fair value as of June 30, 2022:


	Available-for-sale				Held-to-maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
1 year or less	$	4,854	$	4,869	$	5,125	$	5,018
1 year – 5 years	34,134		33,151		232,236		221,284
5 years – 10 years	91,531		81,388		64,786		58,206
After 10 years	30,836		25,392		5,487		4,799
	161,355		144,800		307,634		289,307
Residential & multi-family mortgage	273,603		244,513		105,676		100,626
Pooled SBA	15,946		15,094		0		0

Total debt securities	$	450,904	$	404,407	$	413,310	$	389,933

Mortgage securities and pooled SBA securities are not due at a single date; periodic payments are received based on the payment patterns of the underlying collateral.

On June 30, 2022 and December 31, 2021, securities carried at $626.0 million and $461.5 million, respectively, were pledged to secure public deposits and for other purposes as provided by law.

At June 30, 2022 and December 31, 2021, there were no holdings of securities of any one issuer, other than the U.S. Government sponsored entities, in an amount greater than 10% of shareholders’ equity. The Corporation’s residential and multi-family mortgage securities are issued by government sponsored entities.

AFS debt securities with unrealized losses at June 30, 2022 and December 31, 2021, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are as follows:

June 30, 2022


	Less than 12 Months				12 Months or More				Total
Description of Securities	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
U.S. Government sponsored entities	$	2,211	$	(67)	$	0	$	0	$	2,211	$	(67)
State & political subdivisions	73,314		(10,174)		11,016		(2,872)		84,330		(13,046)
Residential & multi-family mortgage	164,539		(17,703)		66,816		(11,501)		231,355		(29,204)
Corporate notes & bonds	30,790		(3,117)		5,263		(499)		36,053		(3,616)
Pooled SBA	14,647		(861)		0		0		14,647		(861)

	$	285,501	$	(31,922)	$	83,095	$	(14,872)	$	368,596	$	(46,794)

December 31, 2021


	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
U.S. Government sponsored entities	$	23,733	$	(553)	$	37,911	$	(1,215)	$	61,644	$	(1,768)
State & political subdivisions	55,636		(1,399)		5,026		(283)		60,662		(1,682)
Residential & multi-family mortgage	248,690		(4,837)		45,185		(1,676)		293,875		(6,513)
Corporate notes & bonds	6,466		(249)		3,806		(194)		10,272		(443)
Pooled SBA	4,394		(37)		127		(1)		4,521		(38)

	$	338,919	$	(7,075)	$	92,055	$	(3,369)	$	430,974	$	(10,444)

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HTM debt securities with unrealized losses at June 30, 2022 and December 31, 2021, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are as follows:

June 30, 2022


	Less than 12 Months				12 Months or More				Total
Description of Securities	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
U.S. Government sponsored entities	$	241,832	$	(14,169)	$	47,475	$	(4,158)	$	289,307	$	(18,327)
Residential & multi-family mortgage	75,181		(3,482)		25,445		(1,568)		100,626		(5,050)





	$	317,013	$	(17,651)	$	72,920	$	(5,726)	$	389,933	$	(23,377)

December 31, 2021


	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
U.S. Government sponsored entities	$	0	$	0	$	0	$	0	$	0	$	0
Residential & multi-family mortgage	0		0		0		0		0		0





	$	0	$	0	$	0	$	0	$	0	$	0

At June 30, 2022 and December 31, 2021, management performed an assessment for possible impairment related to credit losses of the Corporation’s debt securities, relying on information obtained from various sources, including publicly available financial data, ratings by external agencies, brokers and other sources. Based on the results of the assessment, management believes there is no credit related impairment of these debt securities at June 30, 2022 and December 31, 2021.

For the securities that comprise corporate notes and bonds and the securities that are issued by state and political subdivisions, management monitors publicly available financial information, such as filings with the Securities and Exchange Commission, in order to evaluate the securities for potential credit impairment. For financial institution issuers, management monitors information from quarterly “call” report filings that are used to generate Uniform Bank Performance Reports. All other securities that were in an unrealized loss position at the balance sheet date were reviewed by management, and issuer-specific documents were reviewed as appropriate given the following considerations; the financial condition and near-term prospects of the issuer and whether downgrades by bond rating agencies have occurred, the length of time and extent to which fair value has been less than cost, and whether management does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery.

As of June 30, 2022 and December 31, 2021, management concluded the debt securities described in the previous paragraphs were not impaired for reasons due to credit quality for the following reasons:

•There is no indication of any significant deterioration of the creditworthiness of the institutions that issued the securities.

•All contractual interest payments on the securities have been received as scheduled, and no information has come to management’s attention through the processes previously described which would lead to a conclusion that future contractual payments will not be timely received.

•The unrealized losses were deemed to be temporary changes in value related to market movements in interest yields.

The Corporation does not intend to sell and it is not more likely than not that it will be required to sell the securities in an unrealized loss position before recovery of its amortized cost basis.

Equity securities at June 30, 2022 and December 31, 2021 are as follows:


	June 30, 2022		December 31, 2021
Corporate equity securities	$	6,272	$	6,715
Mutual funds	2,591		2,566
Certificates of deposit	0		506
Corporate notes and bonds	676		579

Total	$	9,539	$	10,366

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4. LOANS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES

Total net loans receivable at June 30, 2022 and December 31, 2021 are summarized as follows:


	June 30, 2022		Percentage of Total		December 31, 2021		Percentage of Total
Farmland	$	31,649	0.8	%	$	23,768	0.7	%
Owner-occupied, nonfarm nonresidential properties	463,922		11.9	%	434,672		12.0	%
Agricultural production and other loans to farmers	1,097		0.0	%	1,379		0.0	%
Commercial and Industrial 1	759,417		19.4	%	708,989		19.5	%
Obligations (other than securities and leases) of states and political subdivisions	143,488		3.7	%	140,887		3.9	%
Other loans	14,524		0.4	%	13,979		0.4	%
Other construction loans and all land development and other land loans	341,399		8.7	%	298,869		8.2	%
Multifamily (5 or more) residential properties	212,561		5.5	%	216,143		5.9	%
Non-owner occupied, nonfarm nonresidential properties	734,580		18.8	%	663,062		18.2	%
1-4 Family Construction	40,990		1.0	%	37,822		1.0	%
Home equity lines of credit	115,836		3.0	%	104,517		2.9	%
Residential Mortgages secured by first liens	875,974		22.4	%	826,729		22.7	%
Residential Mortgages secured by junior liens	62,212		1.6	%	56,689		1.6	%
Other revolving credit plans	28,768		0.7	%	26,536		0.7	%
Automobile	20,166		0.5	%	20,862		0.6	%
Other consumer	51,765		1.3	%	49,676		1.4	%
Credit cards	11,049		0.3	%	9,935		0.3	%
Overdrafts	356		0.0	%	278		0.0	%
Total loans receivable	$	3,909,753	100.0	%	$	3,634,792	100.0	%
Less: Allowance for credit losses	(40,543)				(37,588)
Loans receivable, net	$	3,869,210			$	3,597,204

Net deferred loan origination fees (costs) included in the above table	$	4,513			$	5,667

1 PPP loans, net of deferred PPP processing fees, both those disbursed in 2020 and those disbursed in 2021, are included in the Commercial and Industrial classification.

The Corporation’s outstanding loans receivable and related unfunded commitments are primarily concentrated within central and northwest Pennsylvania, central and northeast Ohio, western New York and Southwestern Virginia. The Bank attempts to limit concentrations within specific industries by utilizing dollar limitations to single industries or customers, and by entering into participation agreements with third parties. Collateral requirements are established based on management’s assessment of the customer. The Corporation maintains lending policies to control the quality of the loan portfolio. These policies delegate the authority to extend loans under specific guidelines and underwriting standards. These policies are prepared by the Corporation’s management and reviewed and approved annually by the Corporation’s Board of Directors.

During the second quarter of 2020, the Corporation began originating loans to qualified small businesses under the Paycheck Protection Program ("PPP") administered by the Small Business Administration (“SBA”) under the provisions of the Coronavirus Aid, Relief, and Economic Security Act. PPP loans, both those disbursed in 2020 and those disbursed in 2021, are included in the commercial and industrial classification and, as the PPP loans are fully guaranteed by the SBA, no allowance for credit losses was required recorded against the PPP loans, net of deferred PPP processing fees, outstanding of $2.3 million and $45.2 million as of June 30, 2022 and December 31, 2021, respectively. Syndicated loans, net of deferred fees and costs, are included in the commercial and industrial classification and totaled $153.2 million and $125.8 million as of June 30, 2022 and December 31, 2021, respectively.

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Transactions in the allowance for credit losses for the three months ended June 30, 2022 were as follows:


	Beginning Allowance		(Charge-offs)		Recoveries		Provision (Benefit) for Credit Losses on Loans Receivable(1)		Ending Allowance
Farmland	$	186	$	0	$	0	$	5	$	191
Owner-occupied, nonfarm nonresidential properties	3,595		0		2		117		3,714
Agricultural production and other loans to farmers	10		0		0		(3)		7
Commercial and Industrial	9,090		(14)		13		466		9,555
Obligations (other than securities and leases) of states and political subdivisions	1,828		0		0		(163)		1,665
Other loans	143		0		0		24		167
Other construction loans and all land development and other land loans	2,050		0		0		278		2,328
Multifamily (5 or more) residential properties	2,236		0		0		41		2,277
Non-owner occupied, nonfarm nonresidential properties	6,411		0		0		337		6,748
1-4 Family Construction	210		0		0		26		236
Home equity lines of credit	1,181		0		2		170		1,353
Residential Mortgages secured by first liens	6,905		0		0		759		7,664
Residential Mortgages secured by junior liens	552		0		0		76		628
Other revolving credit plans	547		(19)		28		42		598
Automobile	254		(6)		0		(6)		242
Other consumer	2,569		(369)		19		485		2,704
Credit cards	103		(45)		4		48		110
Overdrafts	247		(127)		33		203		356
Total	$	38,117	$	(580)	$	101	$	2,905	$	40,543

(1) Excludes provision for credit losses related to unfunded commitments. Note 8, "Off-Balance Sheet Commitments and Contingencies," in the condensed consolidated financial statements provides more detail concerning the provision for credit losses related to unfunded commitments of the Corporation.

Transactions in the allowance for credit losses for the six months ended June 30, 2022 were as follows:


	Beginning Allowance		(Charge-offs)		Recoveries		Provision (Benefit) for Credit Losses on Loans Receivable(1)		Ending Allowance
Farmland	$	151	$	0	$	0	$	40	$	191
Owner-occupied, nonfarm nonresidential properties	3,339		(21)		9		387		3,714
Agricultural production and other loans to farmers	9		0		0		(2)		7
Commercial and Industrial	8,837		(85)		91		712		9,555
Obligations (other than securities and leases) of states and political subdivisions	1,649		0		0		16		1,665
Other loans	149		0		0		18		167
Other construction loans and all land development and other land loans	2,198		0		0		130		2,328
Multifamily (5 or more) residential properties	2,289		0		0		(12)		2,277
Non-owner occupied, nonfarm nonresidential properties	6,481		0		0		267		6,748
1-4 Family Construction	158		0		0		78		236
Home equity lines of credit	1,169		0		10		174		1,353
Residential Mortgages secured by first liens	6,943		(47)		12		756		7,664
Residential Mortgages secured by junior liens	546		0		0		82		628
Other revolving credit plans	528		(45)		34		81		598
Automobile	263		(13)		0		(8)		242
Other consumer	2,546		(770)		41		887		2,704
Credit cards	92		(59)		8		69		110
Overdrafts	241		(246)		74		287		356
Total	$	37,588	$	(1,286)	$	279	$	3,962	$	40,543

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Transactions in the allowance for credit losses for the three months ended June 30, 2021 were as follows:


	Beginning Allowance		(Charge-offs)		Recoveries		Provision (Benefit) for Credit Losses on Loans Receivable(1)		Ending Allowance
Farmland	$	224	$	0	$	0	$	(100)	$	124
Owner-occupied, nonfarm nonresidential properties	2,935		0		3		(58)		2,880
Agricultural production and other loans to farmers	28		0		0		(16)		12
Commercial and Industrial	6,479		(14)		15		832		7,312
Obligations (other than securities and leases) of states and political subdivisions	1,715		(250)		0		860		2,325
Other loans	73		0		0		44		117
Other construction loans and all land development and other land loans	2,006		0		0		358		2,364
Multifamily (5 or more) residential properties	2,754		0		0		(440)		2,314
Non-owner occupied, nonfarm nonresidential properties	11,326		0		0		(1,164)		10,162
1-4 Family Construction	67		0		0		43		110
Home equity lines of credit	843		0		2		184		1,029
Residential Mortgages secured by first liens	3,550		(42)		1		889		4,398
Residential Mortgages secured by junior liens	224		0		0		184		408
Other revolving credit plans	527		(17)		3		(54)		459
Automobile	182		0		3		56		241
Other consumer	2,374		(246)		47		227		2,402
Credit cards	65		(39)		3		39		68
Overdrafts	183		(107)		24		83		183
Total	$	35,555	$	(715)	$	101	$	1,967	$	36,908

Transactions in the allowance for credit losses for the six months ended June 30, 2021 were as follows:


	Beginning Allowance		(Charge-offs)		Recoveries		Provision (Benefit) for Credit Losses on Loans Receivable(1)		Ending Allowance
Farmland	$	221	$	0	$	0	$	(97)	$	124
Owner-occupied, nonfarm nonresidential properties	3,700		(531)		5		(294)		2,880
Agricultural production and other loans to farmers	24		0		0		(12)		12
Commercial and Industrial	6,233		(70)		20		1,129		7,312
Obligations (other than securities and leases) of states and political subdivisions	998		(250)		0		1,577		2,325
Other loans	68		0		0		49		117
Other construction loans and all land development and other land loans	1,956		0		0		408		2,364
Multifamily (5 or more) residential properties	2,724		0		0		(410)		2,314
Non-owner occupied, nonfarm nonresidential properties	8,658		0		0		1,504		10,162
1-4 Family Construction	82		0		0		28		110
Home equity lines of credit	985		0		2		42		1,029
Residential Mortgages secured by first liens	4,539		(70)		32		(103)		4,398
Residential Mortgages secured by junior liens	241		0		0		167		408
Other revolving credit plans	507		(23)		5		(30)		459
Automobile	132		(5)		3		111		241
Other consumer	2,962		(561)		95		(94)		2,402
Credit cards	66		(72)		11		63		68
Overdrafts	244		(191)		79		51		183
Total	$	34,340	$	(1,773)	$	252	$	4,089	$	36,908

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The Corporation's allowance for credit losses is influenced by loan volumes, risk rating migration, delinquency status and other conditions influencing loss expectations, such as reasonable and supportable forecasts of economic conditions.

For the three and six months ended June 30, 2022, the allowance for credit losses increased due to the growth in the Corporation's loan portfolio, including growth in new market areas. This was partially offset by improvements in the Corporation's historical loss rates, as well as the impact of net charge-offs. There is still a significant amount of uncertainty related to the domestic and global economy, continued supply chain challenges, persistent inflation and the COVID-19 pandemic. Management will continue to proactively evaluate its estimate of expected credit losses as new information becomes available.

Provision for credit losses was $2.9 million and $4.5 million for the three and six months ended June 30, 2022, respectively, compared to $2.0 million and $4.1 million for the three and six months ended June 30, 2021. The increase in provision for the three months ended June 30, 2022 was primarily due to the growth in commercial loans. Included in the provision for credit losses for the six months ended June 30, 2022 was $586 thousand related to the allowance for unfunded commitments compared to no accrual towards the allowance for unfunded commitments for the six months ended June 30, 2021.

The following tables presents the amortized cost basis of loans receivable on nonaccrual status and loans receivable past due over 89 days still accruing as of June 30, 2022 and December 31, 2021, respectively:


	June 30, 2022
	Nonaccrual		Nonaccrual With No Allowance for Credit Loss		Loans Receivable Past Due over 89 Days Still Accruing
Farmland	$	938	$	938	$	997
Owner-occupied, nonfarm nonresidential properties	1,711		1,632		0

Commercial and Industrial	5,919		2,070		55


Other construction loans and all land development and other land loans	71		71		0
Multifamily (5 or more) residential properties	1,108		0		0
Non-owner occupied, nonfarm nonresidential properties	3,685		2,058		0

Home equity lines of credit	586		586		0
Residential Mortgages secured by first liens	4,021		3,558		5
Residential Mortgages secured by junior liens	200		200		0
Other revolving credit plans	49		49		0
Automobile	30		30		0
Other consumer	636		636		0
Credit cards	0		0		3

Total	$	18,954	$	11,828	$	1,060

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	December 31, 2021
	Nonaccrual		Nonaccrual With No Allowance for Credit Loss		Loans Receivable Past Due over 89 Days Still Accruing
Farmland	$	965	$	965	$	0
Owner-occupied, nonfarm nonresidential properties	850		762		0

Commercial and Industrial	7,060		1,653		8


Other construction loans and all land development and other land loans	516		77		0
Multifamily (5 or more) residential properties	1,270		5		0
Non-owner occupied, nonfarm nonresidential properties	3,771		2,143		0

Home equity lines of credit	824		824		0
Residential Mortgages secured by first liens	3,410		3,410		137
Residential Mortgages secured by junior liens	147		147		0
Other revolving credit plans	13		13		0
Automobile	36		36		0
Other consumer	558		558		0
Credit cards	0		0		23

Total	$	19,420	$	10,593	$	168

All payments received while on nonaccrual status are applied against the principal balance of the loan. The Corporation does not recognize interest income while a loan is on nonaccrual status.

The following table presents the amortized cost basis of loans receivable that are individually evaluated and collateral-dependent by class of loans as of June 30, 2022:


	Real Estate Collateral		Non-Real Estate Collateral
Farmland	$	895	$	0
Owner-occupied, nonfarm nonresidential properties	1,163		9

Commercial and Industrial	115		2,090



Multifamily (5 or more) residential properties	1,108		0
Non-owner occupied, nonfarm nonresidential properties	3,262		0


Residential Mortgages secured by first liens	888		0






Total	$	7,431	$	2,099

The following table presents the amortized cost basis of loans receivable that are individually evaluated and collateral-dependent by class of loans as of December 31, 2021:


	Real Estate Collateral		Non-Real Estate Collateral
Farmland	$	920	$	0
Owner-occupied, nonfarm nonresidential properties	194		9

Commercial and Industrial	1,488		2,351


Other construction loans and all land development and other land loans	438		0
Multifamily (5 or more) residential properties	1,265		0
Non-owner occupied, nonfarm nonresidential properties	3,378		0


Residential Mortgages secured by first liens	435		0






Total	$	8,118	$	2,360

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The following table presents the aging of the amortized cost basis in past-due loans receivable as of June 30, 2022 by class of loans:


	30 - 59 Days Past Due		60 - 89 Days Past Due		Greater Than 89 Days Past Due		Total Past Due		Loans Receivable Not Past Due		Total
Farmland	$	148	$	0	$	997	$	1,145	$	30,504	$	31,649
Owner-occupied, nonfarm nonresidential properties	63		490		876		1,429		462,493		463,922
Agricultural production and other loans to farmers	0		0		0		0		1,097		1,097
Commercial and Industrial	133		181		502		816		758,601		759,417
Obligations (other than securities and leases) of states and political subdivisions	0		0		0		0		143,488		143,488
Other loans	0		0		0		0		14,524		14,524
Other construction loans and all land development and other land loans	0		0		71		71		341,328		341,399
Multifamily (5 or more) residential properties	357		0		90		447		212,114		212,561
Non-owner occupied, nonfarm nonresidential properties	215		0		1,680		1,895		732,685		734,580
1-4 Family Construction	0		0		0		0		40,990		40,990
Home equity lines of credit	107		344		49		500		115,336		115,836
Residential Mortgages secured by first liens	1,397		467		1,300		3,164		872,810		875,974
Residential Mortgages secured by junior liens	80		41		53		174		62,038		62,212
Other revolving credit plans	44		9		23		76		28,692		28,768
Automobile	43		4		4		51		20,115		20,166
Other consumer	288		205		294		787		50,978		51,765
Credit cards	75		13		3		91		10,958		11,049
Overdrafts	0		0		0		0		356		356
Total	$	2,950	$	1,754	$	5,942	$	10,646	$	3,899,107	$	3,909,753

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The following table presents the aging of the amortized cost basis in past-due loans receivable as of December 31, 2021 by class of loans:


	30 - 59 Days Past Due		60 - 89 Days Past Due		Greater Than 89 Days Past Due		Total Past Due		Loans Receivable Not Past Due		Total
Farmland	$	348	$	0	$	0	$	348	$	23,420	$	23,768
Owner-occupied, nonfarm nonresidential properties	278		18		414		710		433,962		434,672
Agricultural production and other loans to farmers	0		0		0		0		1,379		1,379
Commercial and Industrial	377		13		333		723		708,266		708,989
Obligations (other than securities and leases) of states and political subdivisions	0		0		0		0		140,887		140,887
Other loans	0		0		0		0		13,979		13,979
Other construction loans and all land development and other land loans	0		0		77		77		298,792		298,869
Multifamily (5 or more) residential properties	0		10		209		219		215,924		216,143
Non-owner occupied, nonfarm nonresidential properties	0		0		1,792		1,792		661,270		663,062
1-4 Family Construction	0		0		0		0		37,822		37,822
Home equity lines of credit	506		50		172		728		103,789		104,517
Residential Mortgages secured by first liens	1,286		1,145		1,647		4,078		822,651		826,729
Residential Mortgages secured by junior liens	32		24		1		57		56,632		56,689
Other revolving credit plans	56		17		4		77		26,459		26,536
Automobile	45		3		23		71		20,791		20,862
Other consumer	283		158		295		736		48,940		49,676
Credit cards	26		12		23		61		9,874		9,935
Overdrafts	0		0		0		0		278		278
Total	$	3,237	$	1,450	$	4,990	$	9,677	$	3,625,115	$	3,634,792

Troubled Debt Restructurings

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without a loan modification. This evaluation is performed using the Corporation’s internal underwriting policies. The Corporation has no further loan commitments to customers whose loan receivables are classified as a TDR.

As of June 30, 2022 and December 31, 2021, the terms of certain loans were modified as TDRs. The modification of the terms of such loans included either or both of the following: a reduction of the stated interest rate of the loan; or an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk. The Corporation had an amortized cost in TDRs of $17.8 million and $16.6 million as of June 30, 2022 and December 31, 2021, respectively. The Corporation has allocated $2.6 million and $2.6 million of allowance for those loans as of June 30, 2022 and December 31, 2021, respectively.

There were no loans modified as TDRs during the three months ended June 30, 2022.

There was one loan modified as a TDR during the six months ended June 30, 2022:


	Six Months Ended June 30, 2022
	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Type of Modification








Non-owner occupied, nonfarm nonresidential properties	1	$	1,784	$	1,784	Modify Rate and Extend Amortization









Total	1	$	1,784	$	1,784

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There was one loan modified as TDRs during the three months ended June 30, 2021.


	Three Months Ended June 30, 2021
	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Type of Modification



Commercial and Industrial	1	$	578	$	578	Modify Payment














Total	1	$	578	$	578

There were three loans modified as TDRs during the six months ended June 30, 2021.


	Six Months Ended June 30, 2021
	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Type of Modification



Commercial and Industrial	1	$	578	$	578	Modify Payment



Multifamily (5 or more) residential properties	1	717		717		Modify Payment
Non-owner occupied, nonfarm nonresidential properties	1	1,604		1,604		Modify Payment









Total	3	$	2,899	$	2,899

The TDRs described above increased the allowance for credit losses by an immaterial amount for the three and six months ended June 30, 2022 and 2021, respectively.

A loan receivable is considered to be in payment default once it is 90 days contractually past due under the modified terms. There were no loans modified as TDRs for which there was a payment default within a twelve-month cycle following the modification during the three and six months ended June 30, 2022 and 2021, respectively. There were no principal balances forgiven in connection with the loans restructurings.

Generally, nonperforming TDRs are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time (generally six months) and the ultimate collectability of the total contractual principal and interest is no longer in doubt.

Credit Quality Indicators

The Corporation categorizes loans receivable into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Corporation analyzes loans individually to classify the loans as to credit risk.

The Corporation uses the following definitions for risk ratings:

Special Mention: A loan classified as special mention has a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Corporation’s credit position at some future date.

Substandard: A loan classified as substandard is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. The loan has a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. A substandard loan is characterized by the distinct possibility that the Corporation will sustain some loss if the deficiencies are not corrected.

Doubtful: A loan classified as doubtful has all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

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The following tables represent the Corporation's credit risk profile by risk rating. Loans receivable not rated as special mention, substandard, or doubtful are considered to be pass rated loans.


	June 30, 2022
			Non-Pass Rated
	Pass		Special Mention		Substandard		Doubtful		Total Non-Pass		Total
Farmland	$	29,261	$	1,450	$	938	$	0	$	2,388	$	31,649
Owner-occupied, nonfarm nonresidential properties	449,366		6,406		8,150		0		14,556		463,922
Agricultural production and other loans to farmers	1,097		0		0		0		0		1,097
Commercial and Industrial	740,370		6,554		11,137		1,356		19,047		759,417
Obligations (other than securities and leases) of states and political subdivisions	143,488		0		0		0		0		143,488
Other loans	14,524		0		0		0		0		14,524
Other construction loans and all land development and other land loans	339,750		1,578		71		0		1,649		341,399
Multifamily (5 or more) residential properties	211,353		100		1,108		0		1,208		212,561
Non-owner occupied, nonfarm nonresidential properties	704,941		6,610		23,029		0		29,639		734,580









Total	$	2,634,150	$	22,698	$	44,433	$	1,356	$	68,487	$	2,702,637


	December 31, 2021
			Non-Pass Rated
	Pass		Special Mention		Substandard		Doubtful		Total Non-Pass		Total
Farmland	$	21,286	$	1,514	$	968	$	0	$	2,482	$	23,768
Owner-occupied, nonfarm nonresidential properties	419,368		6,723		8,581		0		15,304		434,672
Agricultural production and other loans to farmers	1,379		0		0		0		0		1,379
Commercial and Industrial	687,010		7,946		12,654		1,379		21,979		708,989
Obligations (other than securities and leases) of states and political subdivisions	140,887		0		0		0		0		140,887
Other loans	13,979		0		0		0		0		13,979
Other construction loans and all land development and other land loans	294,103		4,221		545		0		4,766		298,869
Multifamily (5 or more) residential properties	214,772		100		1,271		0		1,371		216,143
Non-owner occupied, nonfarm nonresidential properties	631,534		9,628		21,900		0		31,528		663,062









Total	$	2,424,318	$	30,132	$	45,919	$	1,379	$	77,430	$	2,501,748

Table of Contents

The following tables detail the amortized cost of loans receivable, by year of origination (for term loans) and by risk grade within each portfolio segment as of June 30, 2022. The current period originations may include modifications, extensions and renewals.


	Term Loans Amortized Cost Basis by Origination Year
	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
Farmland
Risk rating
Pass	$	8,911	$	7,782	$	1,610	$	3,149	$	3,497	$	3,892	$	420	$	0	$	29,261
Special mention	0		0		0		0		0		1,450		0		0		1,450
Substandard	0		388		0		0		0		550		0		0		938
Doubtful	0		0		0		0		0		0		0		0		0
Total	$	8,911	$	8,170	$	1,610	$	3,149	$	3,497	$	5,892	$	420	$	0	$	31,649
Owner-occupied, nonfarm nonresidential properties
Risk rating
Pass	$	67,952	$	116,666	$	74,850	$	72,416	$	26,633	$	71,231	$	19,618	$	0	$	449,366
Special mention	0		237		0		888		4,193		1,078		10		0		6,406
Substandard	0		156		386		2,044		821		4,743		0		0		8,150
Doubtful	0		0		0		0		0		0		0		0		0
Total	$	67,952	$	117,059	$	75,236	$	75,348	$	31,647	$	77,052	$	19,628	$	0	$	463,922
Agricultural production and other loans to farmers
Risk rating
Pass	$	129	$	151	$	91	$	70	$	192	$	0	$	464	$	0	$	1,097
Special mention	0		0		0		0		0		0		0		0		0
Substandard	0		0		0		0		0		0		0		0		0
Doubtful	0		0		0		0		0		0		0		0		0
Total	$	129	$	151	$	91	$	70	$	192	$	0	$	464	$	0	$	1,097
Commercial and Industrial
Risk rating
Pass	$	117,219	$	236,523	$	75,375	$	21,326	$	11,010	$	21,573	$	257,344	$	0	$	740,370
Special mention	0		0		159		431		340		183		5,441		0		6,554
Substandard	0		2,748		984		436		358		1,046		5,565		0		11,137
Doubtful(1)	0		1,356		0		0		0		0		0		0		1,356
Total	$	117,219	$	240,627	$	76,518	$	22,193	$	11,708	$	22,802	$	268,350	$	0	$	759,417
Obligations (other than securities and leases) of states and political subdivisions
Risk rating
Pass	$	11,108	$	37,217	$	16,428	$	4,748	$	13,747	$	55,509	$	4,731	$	0	$	143,488
Special mention	0		0		0		0		0		0		0		0		0
Substandard	0		0		0		0		0		0		0		0		0
Doubtful	0		0		0		0		0		0		0		0		0
Total	$	11,108	$	37,217	$	16,428	$	4,748	$	13,747	$	55,509	$	4,731	$	0	$	143,488
Other loans
Risk rating
Pass	$	2,160	$	5,484	$	2,505	$	400	$	0	$	0	$	3,975	$	0	$	14,524
Special mention	0		0		0		0		0		0		0		0		0
Substandard	0		0		0		0		0		0		0		0		0
Doubtful	0		0		0		0		0		0		0		0		0
Total	$	2,160	$	5,484	$	2,505	$	400	$	0	$	0	$	3,975	$	0	$	14,524

(1) Consists of one loan relationship that was originated in 2015 and modified in 2021. The modification met the requirements to disclose the loan relationship as a new loan during the current period.

Table of Contents


	Term Loans Amortized Cost Basis by Origination Year
	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
Other construction loans and all land development and other land loans
Risk rating
Pass	$	107,639	$	96,680	$	108,607	$	7,398	$	9,137	$	2,063	$	8,226	$	0	$	339,750
Special mention	0		1,511		0		67		0		0		0		0		1,578
Substandard	0		0		0		0		0		0		71		0		71
Doubtful	0		0		0		0		0		0		0		0		0
Total	$	107,639	$	98,191	$	108,607	$	7,465	$	9,137	$	2,063	$	8,297	$	0	$	341,399
Multifamily (5 or more) residential properties
Risk rating
Pass	$	38,463	$	53,374	$	54,210	$	29,892	$	6,623	$	26,335	$	2,456	$	0	$	211,353
Special mention	0		0		0		0		0		0		100		0		100
Substandard	0		0		0		661		357		90		0		0		1,108
Doubtful	0		0		0		0		0		0		0		0		0
Total	$	38,463	$	53,374	$	54,210	$	30,553	$	6,980	$	26,425	$	2,556	$	0	$	212,561
Non-owner occupied, nonfarm nonresidential properties
Risk rating
Pass	$	207,920	$	164,540	$	62,917	$	81,646	$	48,194	$	131,397	$	8,327	$	0	$	704,941
Special mention	0		0		0		417		518		5,224		451		0		6,610
Substandard	0		810		0		2,277		1,651		16,196		2,095		0		23,029
Doubtful	0		0		0		0		0		0		0		0		0
Total	$	207,920	$	165,350	$	62,917	$	84,340	$	50,363	$	152,817	$	10,873	$	0	$	734,580

Table of Contents

The following tables detail the amortized cost of loans receivable, by year of origination (for term loans) and by risk grade within each portfolio segment as of December 31, 2021. The current period originations may include modifications, extensions and renewals.


	Term Loans Amortized Cost Basis by Origination Year
	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
Farmland
Risk rating
Pass	$	8,203	$	1,690	$	3,276	$	3,547	$	564	$	3,545	$	461	$	0	$	21,286
Special mention	0		0		0		0		394		1,120		0		0		1,514
Substandard	388		0		0		0		48		532		0		0		968
Doubtful	0		0		0		0		0		0		0		0		0
Total	$	8,591	$	1,690	$	3,276	$	3,547	$	1,006	$	5,197	$	461	$	0	$	23,768
Owner-occupied, nonfarm nonresidential properties
Risk rating
Pass	$	135,095	$	78,068	$	78,621	$	29,100	$	40,677	$	50,079	$	7,728	$	0	$	419,368
Special mention	243		0		903		4,287		135		1,145		10		0		6,723
Substandard	687		416		2,190		868		250		4,152		18		0		8,581
Doubtful	0		0		0		0		0		0		0		0		0
Total	$	136,025	$	78,484	$	81,714	$	34,255	$	41,062	$	55,376	$	7,756	$	0	$	434,672
Agricultural production and other loans to farmers
Risk rating
Pass	$	211	$	103	$	76	$	198	$	0	$	0	$	791	$	0	$	1,379
Special mention	0		0		0		0		0		0		0		0		0
Substandard	0		0		0		0		0		0		0		0		0
Doubtful	0		0		0		0		0		0		0		0		0
Total	$	211	$	103	$	76	$	198	$	0	$	0	$	791	$	0	$	1,379
Commercial and Industrial
Risk rating
Pass	$	313,983	$	84,815	$	31,375	$	16,577	$	12,389	$	6,777	$	221,094	$	0	$	687,010
Special mention	0		363		793		381		82		844		5,483		0		7,946
Substandard	1,991		800		1,862		452		29		2,016		5,504		0		12,654
Doubtful(1)	1,379		0		0		0		0		0		0		0		1,379
Total	$	317,353	$	85,978	$	34,030	$	17,410	$	12,500	$	9,637	$	232,081	$	0	$	708,989
Obligations (other than securities and leases) of states and political subdivisions
Risk rating
Pass	$	36,853	$	16,688	$	8,774	$	16,957	$	20,071	$	36,764	$	4,780	$	0	$	140,887
Special mention	0		0		0		0		0		0		0		0		0
Substandard	0		0		0		0		0		0		0		0		0
Doubtful	0		0		0		0		0		0		0		0		0
Total	$	36,853	$	16,688	$	8,774	$	16,957	$	20,071	$	36,764	$	4,780	$	0	$	140,887
Other loans
Risk rating
Pass	$	5,851	$	5,305	$	552	$	3	$	0	$	0	$	2,268	$	0	$	13,979
Special mention	0		0		0		0		0		0		0		0		0
Substandard	0		0		0		0		0		0		0		0		0
Doubtful	0		0		0		0		0		0		0		0		0
Total	$	5,851	$	5,305	$	552	$	3	$	0	$	0	$	2,268	$	0	$	13,979

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	Term Loans Amortized Cost Basis by Origination Year
	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
Other construction loans and all land development and other land loans
Risk rating
Pass	$	98,406	$	168,372	$	8,752	$	11,141	$	853	$	898	$	5,681	$	0	$	294,103
Special mention	1,500		0		650		0		2,071		0		0		0		4,221
Substandard	0		0		0		29		439		0		77		0		545
Doubtful	0		0		0		0		0		0		0		0		0
Total	$	99,906	$	168,372	$	9,402	$	11,170	$	3,363	$	898	$	5,758	$	0	$	298,869
Multifamily (5 or more) residential properties
Risk rating
Pass	$	74,687	$	55,663	$	33,436	$	7,937	$	27,729	$	12,882	$	2,438	$	0	$	214,772
Special mention	0		0		0		0		0		100		0		0		100
Substandard	0		6		682		379		204		0		0		0		1,271
Doubtful	0		0		0		0		0		0		0		0		0
Total	$	74,687	$	55,669	$	34,118	$	8,316	$	27,933	$	12,982	$	2,438	$	0	$	216,143
Non-owner occupied, nonfarm nonresidential properties
Risk rating
Pass	$	194,800	$	125,039	$	84,943	$	52,233	$	42,714	$	123,021	$	8,784	$	0	$	631,534
Special mention	0		0		428		1,004		189		5,556		2,451		0		9,628
Substandard	826		0		2,305		1,662		4,638		12,134		335		0		21,900
Doubtful	0		0		0		0		0		0		0		0		0
Total	$	195,626	$	125,039	$	87,676	$	54,899	$	47,541	$	140,711	$	11,570	$	0	$	663,062

The Corporation considers the performance of the loan portfolio and its impact on the allowance for credit losses. For 1-4 family construction, home equity lines of credit, residential mortgages secured by first liens, residential mortgages secured by junior liens, automobile, credit cards, other revolving credit plans and other consumer segments, the Corporation evaluates credit quality based on the performance status of the loan, which was previously presented, and by payment activity. Nonperforming loans include loans receivable on nonaccrual status and loans receivable past due over 89 days and still accruing interest.


	June 30, 2022						December 31, 2021
	Performing		Nonperforming		Total		Performing		Nonperforming		Total









1-4 Family Construction	$	40,990	$	0	$	40,990	$	37,822	$	0	$	37,822
Home equity lines of credit	115,250		586		115,836		103,693		824		104,517
Residential Mortgages secured by first liens	871,948		4,026		875,974		823,182		3,547		826,729
Residential Mortgages secured by junior liens	62,012		200		62,212		56,542		147		56,689
Other revolving credit plans	28,719		49		28,768		26,523		13		26,536
Automobile	20,136		30		20,166		20,826		36		20,862
Other consumer	51,129		636		51,765		49,118		558		49,676


Total	$	1,190,184	$	5,527	$	1,195,711	$	1,117,706	$	5,125	$	1,122,831

Table of Contents

The following tables detail the amortized cost of loans receivable, by year of origination (for term loans) and by payment activity within each portfolio segment as of June 30, 2022. The current period originations may include modifications, extensions and renewals.


	Term Loans Amortized Cost Basis by Origination Year
	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
1-4 Family Construction
Payment performance
Performing	$	10,338	$	22,977	$	6,740	$	740	$	64	$	0	$	131	$	0	$	40,990
Nonperforming	0		0		0		0		0		0		0		0		0
Total	$	10,338	$	22,977	$	6,740	$	740	$	64	$	0	$	131	$	0	$	40,990
Home equity lines of credit
Payment performance
Performing	$	19,051	$	16,290	$	12,999	$	8,529	$	8,637	$	40,985	$	8,759	$	0	$	115,250
Nonperforming	0		0		0		10		8		568		0		0		586
Total	$	19,051	$	16,290	$	12,999	$	8,539	$	8,645	$	41,553	$	8,759	$	0	$	115,836
Residential mortgages secured by first lien
Payment performance
Performing	$	121,438	$	226,101	$	165,399	$	99,774	$	54,696	$	201,139	$	3,401	$	0	$	871,948
Nonperforming	0		619		281		405		128		2,404		189		0		4,026
Total	$	121,438	$	226,720	$	165,680	$	100,179	$	54,824	$	203,543	$	3,590	$	0	$	875,974
Residential mortgages secured by junior liens
Payment performance
Performing	$	13,080	$	18,915	$	9,713	$	5,919	$	3,477	$	10,243	$	665	$	0	$	62,012
Nonperforming	0		0		0		3		0		152		45		0		200
Total	$	13,080	$	18,915	$	9,713	$	5,922	$	3,477	$	10,395	$	710	$	0	$	62,212
Other revolving credit plans
Payment performance
Performing	$	4,003	$	4,197	$	4,268	$	3,030	$	2,318	$	10,903	$	0	$	0	$	28,719
Nonperforming	0		0		0		5		20		24		0		0		49
Total	$	4,003	$	4,197	$	4,268	$	3,035	$	2,338	$	10,927	$	0	$	0	$	28,768
Automobile
Payment performance
Performing	$	4,469	$	5,696	$	4,080	$	3,324	$	1,752	$	815	$	0	$	0	$	20,136
Nonperforming	0		0		16		9		5		0		0		0		30
Total	$	4,469	$	5,696	$	4,096	$	3,333	$	1,757	$	815	$	0	$	0	$	20,166
Other consumer
Payment performance
Performing	$	16,282	$	21,765	$	7,565	$	3,084	$	1,005	$	1,428	$	0	$	0	$	51,129
Nonperforming	40		420		54		40		6		76		0		0		636
Total	$	16,322	$	22,185	$	7,619	$	3,124	$	1,011	$	1,504	$	0	$	0	$	51,765

Table of Contents

The following tables detail the amortized cost of loans receivable, by year of origination (for term loans) and by payment activity within each portfolio segment as of December 31, 2021. The current period originations may include modifications, extensions and renewals.


	Term Loans Amortized Cost Basis by Origination Year
	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
1-4 Family Construction
Payment performance
Performing	$	27,539	$	9,137	$	857	$	66	$	0	$	0	$	223	$	0	$	37,822
Nonperforming	0		0		0		0		0		0		0		0		0
Total	$	27,539	$	9,137	$	857	$	66	$	0	$	0	$	223	$	0	$	37,822
Home equity lines of credit
Payment performance
Performing	$	14,383	$	14,621	$	9,564	$	10,584	$	6,863	$	39,527	$	8,151	$	0	$	103,693
Nonperforming	0		0		9		10		377		428		0		0		824
Total	$	14,383	$	14,621	$	9,573	$	10,594	$	7,240	$	39,955	$	8,151	$	0	$	104,517
Residential mortgages secured by first lien
Payment performance
Performing	$	232,606	$	178,380	$	111,333	$	62,850	$	74,136	$	160,402	$	3,475	$	0	$	823,182
Nonperforming	79		259		227		151		258		2,379		194		0		3,547
Total	$	232,685	$	178,639	$	111,560	$	63,001	$	74,394	$	162,781	$	3,669	$	0	$	826,729
Residential mortgages secured by junior liens
Payment performance
Performing	$	20,617	$	11,256	$	7,239	$	4,407	$	3,508	$	9,095	$	420	$	0	$	56,542
Nonperforming	0		0		0		0		84		63		0		0		147
Total	$	20,617	$	11,256	$	7,239	$	4,407	$	3,592	$	9,158	$	420	$	0	$	56,689
Other revolving credit plans
Payment performance
Performing	$	5,313	$	3,596	$	3,090	$	2,592	$	2,977	$	8,955	$	0	$	0	$	26,523
Nonperforming	0		0		4		4		0		5		0		0		13
Total	$	5,313	$	3,596	$	3,094	$	2,596	$	2,977	$	8,960	$	0	$	0	$	26,536
Automobile
Payment performance
Performing	$	7,047	$	5,448	$	4,668	$	2,457	$	682	$	524	$	0	$	0	$	20,826
Nonperforming	11		13		12		0		0		0		0		0		36
Total	$	7,058	$	5,461	$	4,680	$	2,457	$	682	$	524	$	0	$	0	$	20,862
Other consumer
Payment performance
Performing	$	30,423	$	11,017	$	4,537	$	1,451	$	316	$	1,374	$	0	$	0	$	49,118
Nonperforming	204		170		96		25		3		60		0		0		558
Total	$	30,627	$	11,187	$	4,633	$	1,476	$	319	$	1,434	$	0	$	0	$	49,676


	June 30, 2022		December 31, 2021

Credit card
Payment performance
Performing	$	11,046	$	9,912
Nonperforming	3		23
Total	$	11,049	$	9,935

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Holiday’s loan portfolio, included in other consumer loans above, is summarized as follows at June 30, 2022 and December 31, 2021:


	June 30, 2022		December 31, 2021
Gross other consumer	$	30,058	$	29,227
Less: other consumer unearned discounts	(5,762)		(5,716)
Total other consumer loans, net of unearned discounts	$	24,296	$	23,511

5. LEASES

Operating lease assets represent the Corporation's right to use an underlying asset during the lease term and operating lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate that represents our incremental borrowing rate at the lease commencement date. Operating lease cost, which is comprised of amortization of the operating lease asset and the implicit interest accreted on the operating lease liability, is recognized on a straight-line basis over the lease term, and is recorded in net occupancy expense in the condensed consolidated statements of income.

The Corporation leases certain full-service branch offices, land and equipment. Leases with an initial term of twelve months or less are not recorded on the balance sheet. Most leases include one or more options to renew and the exercise of the lease renewal options are at the Corporation's sole discretion. The Corporation includes lease extension and termination options in the lease term if, after considering relevant economic factors, it is reasonably certain the Corporation will exercise the option. Certain lease agreements of the Corporation include rental payments adjusted periodically for changes in the consumer price index.


Leases	Classification	June 30, 2022		December 31, 2021
Assets:
Operating lease assets	Operating lease assets	$	25,471	$	19,928
Finance lease assets	Premises and equipment, net (1)	322		358
Total leased assets		$	25,793	$	20,286

Liabilities:
Operating lease liabilities	Operating lease liabilities	$	26,785	$	21,159
Finance lease liabilities	Accrued interest payable and other liabilities	426		469
Total leased liabilities		$	27,211	$	21,628

(1) Finance lease assets are recorded net of accumulated amortization of $894 thousand as of June 30, 2022 and $858 thousand as of December 31, 2021.

The components of the Corporation's net lease expense for the three and six months ended June 30, 2022 and 2021, respectively, were as follows:


		Three Months Ended June 30,				Six Months Ended June 30,
Lease Cost	Classification	2022		2021		2022		2021
Operating lease cost	Net occupancy expense	$	566	$	437	$	1,058	$	877
Variable lease cost	Net occupancy expense	17		18		30		35
Finance lease cost:
Amortization of leased assets	Net occupancy expense	18		18		36		36
Interest on lease liabilities	Interest expense - borrowed funds	5		6		10		12
Sublease income (1)	Net occupancy expense	(17)		(19)		(33)		(38)
Net lease cost		$	589	$	460	$	1,101	$	922

(1) Sublease income excludes rental income from owned properties.

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The following table sets forth future minimum rental payments under noncancellable leases with initial terms in excess of one year as of June 30, 2022:


Maturity of Lease Liabilities as of June 30, 2022	Operating Leases (1)		Finance Leases		Total
2022	$	1,024	$	52	$	1,076
2023	1,961		105		2,066
2024	1,890		105		1,995
2025	1,883		105		1,988
2026	1,854		105		1,959
After 2026	30,622		0		30,622
Total lease payments	39,234		472		39,706
Less: Interest	12,449		46		12,495
Present value of lease liabilities	$	26,785	$	426	$	27,211

(1) Operating lease payments include payments related to options to extend lease terms that are reasonably certain of being exercised and exclude $7.8 million of legally binding minimum lease payments for leases signed, but not yet commenced.

Lease terms and discount rates related to the Corporation's lease liabilities as of June 30, 2022 and December 31, 2021 were as follows:


Lease Term and Discount Rate	June 30, 2022		December 31, 2021
Weighted-average remaining lease term (years)
Operating leases	22.1		18.8
Finance leases	4.5		5.0

Weighted-average discount rate
Operating leases	3.37	%	3.42	%
Finance leases	4.49	%	4.49	%

Other information related to the Corporation's lease liabilities as of June 30, 2022 and 2021, respectively, was as follows:


Other Information	June 30, 2022		June 30, 2021

Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	581	$	452

6. DEPOSITS

The following table reflects time certificates of deposit accounts included in total deposits and their remaining maturities at June 30, 2022:



Time deposits maturing:
2022	$	134,701
2023	68,882
2024	36,206
2025	38,976
2026	10,694
Thereafter	14,818
	$	304,277

Certificates of deposits of $250 thousand or more totaled $90.9 million and $116.6 million at June 30, 2022 and December 31, 2021, respectively.

The Corporation had $27.4 million and $52.9 million in reciprocal ICS deposits at June 30, 2022 and December 31, 2021, respectively.

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7. BORROWINGS

At June 30, 2022 and December 31, 2021, the Corporation had available one $10.0 million unsecured line of credit with an unaffiliated institution. Borrowings under the line of credit bear interest at a variable rate equal to SOFR plus 2.85%. There were no borrowings under the line of credit at June 30, 2022 and December 31, 2021.

FHLB Borrowings

The Bank has the ability to borrow funds from the Federal Home Loan Bank ("FHLB"). The Bank maintains a $150.0 million line-of-credit (Open Repo Plus) with the FHLB which is a revolving term commitment available on an overnight basis. The term of this commitment may not exceed 364 days and it reprices daily at market rates. Under terms of a blanket collateral agreement with the FHLB, the line-of-credit and long term advances are secured by FHLB stock and the Bank pledges its single-family residential mortgage loan portfolio, certain commercial real estate loans, and certain agriculture real estate loans as security for any advances.

Total loans receivable pledged to the FHLB at June 30, 2022, and December 31, 2021, were $1.4 billion and $1.3 billion, respectively. The Bank could obtain advances of up to approximately $1.0 billion from the FHLB at June 30, 2022 and $932.7 million at December 31, 2021.

At June 30, 2022 and December 31, 2021, the Bank had no advances from the FHLB.

At June 30, 2022 and December 31, 2021, municipal deposit letters of credit issued by the FHLB on behalf of the Bank naming applicable municipalities as beneficiaries were $15.0 million and $10.4 million, respectively. The letters of credit were utilized in place of securities pledged to the municipalities for their deposits maintained at the Bank.

Other Borrowings

At June 30, 2022 and December 31, 2021, the Bank had no outstanding borrowings from unaffiliated institutions under overnight borrowing agreements.

Subordinated Debentures

In 2007, the Corporation issued two $10.0 million floating rate trust preferred securities as part of a pooled offering of such securities. The interest rate on each offering is determined quarterly and floats based on the three-month LIBOR plus 1.55%. The all-in rate was 3.38% at June 30, 2022 and 1.75% at December 31, 2021. The Corporation issued subordinated debentures to the trusts in exchange for the proceeds of the offerings, which debentures represent the sole assets of the trusts. The subordinated debentures must be redeemed no later than 2037. The Corporation may redeem the debentures, in whole or in part, at face value at any time. The Corporation has the option to defer interest payments from time to time for a period not to exceed five consecutive years. Although the trusts are variable interest entities, the Corporation is not the primary beneficiary. As a result, because the trusts are not consolidated with the Corporation, the Corporation does not report the securities issued by the trusts as liabilities. Instead, the Corporation reports as liabilities the subordinated debentures issued by the Corporation and held by the trusts, since the liabilities are not eliminated in consolidation. The trust preferred securities were designated to qualify as Tier 1 capital under the Federal Reserve’s capital guidelines.

Subordinated Notes

In June 2021, the Corporation sold $85.0 million aggregate principal amount of its fixed-to-floating rate subordinated notes to eligible purchasers in a private offering in reliance on the exemption from the registration requirements of Section 4(a)(2) of the Securities Act and the provisions of Rule 506 of Regulation D thereunder. The notes will mature in June 2031, and initially bear interest at a fixed rate of 3.25% per annum, payable semi-annually in arrears, to, but excluding, June 15, 2026, and thereafter to, but excluding, the maturity date or earlier redemption, the interest rate will reset quarterly to an interest rate per annum equal to the then current three-month average Secured Overnight Financing Rate plus 2.58%. The net proceeds from the sale were approximately $83.5 million, after deducting offering expenses. These subordinated notes were designed to qualify as Tier 2 capital under the Federal Reserve’s capital guidelines and were given an investment grade rating of BBB- by Kroll Bond Rating Agency. The unamortized debt issuance costs were $1.2 million and $1.3 million as of June 30, 2022 and December 31, 2021, respectively.

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8. OFF-BALANCE SHEET COMMITMENTS AND CONTINGENCIES

Financial Instruments with Off-Balance Sheet Risk

Loan commitments are made to accommodate the financial needs of the Corporation’s customers commitments that result in market risk. Standby letters of credit commit the Corporation to make payments on behalf of customers when certain specified future events occur. They are primarily issued to facilitate customers’ trade transactions.

Both arrangements have credit risk, essentially the same as that involved in extending loans to customers, and are subject to the Corporation’s normal credit policies. Collateral is obtained based on a credit assessment of the customer.

The Corporation's maximum obligation to extend credit for loan commitments (unfunded loans and unused lines of credit) and standby letters of credit outstanding as of June 30, 2022 and December 31, 2021 were as follows:


	June 30, 2022				December 31, 2021
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitments to make loans	$	82,054	$	374,464	$	94,924	$	323,013
Unused lines of credit	17,804		679,710		13,265		663,903
Standby letters of credit	15,807		1,640		15,063		1,623

Commitments to make loans are generally made for periods of 60 days or less.

Other Off-Balance Sheet Commitments

The Corporation makes investments in limited partnerships, including certain small business investment corporations and low income housing partnerships. Capital contributions for investments in small business companies ("SBIC") and other limited partnerships, reported in FHLB and other restricted stock holdings and investments on the condensed consolidated balance sheet, as of June 30, 2022 and December 31, 2021 were $16.4 million and $14.5 million, respectively. Unfunded capital commitments in investments in SBIC's and other limited partnerships totaled $6.1 million and $8.0 million as of June 30, 2022 and December 31, 2021, respectively. These investments are accounted for under the equity method of accounting.

The carrying value of investments in the low income housing partnerships, reported in FHLB and other restricted stock holdings and investments on the consolidated balance sheet, as of June 30, 2022 and December 31, 2021 were $4.9 million and $5.3 million, respectively. The related amortization for the three and six months ended June 30, 2022 were $197 thousand and $395 thousand, respectively, and for the three and six months ended June 30, 2021 were $189 thousand and $378 thousand, respectively. Unfunded commitments, reported in accrued interest payable and other liabilities on the condensed consolidated balance sheets, as of June 30, 2022 and December 31, 2021 were $1.4 million and $2.1 million, respectively.

Allowance for Credit Losses on Unfunded Loan Commitments

The Corporation maintains an allowance for credit losses on unfunded commercial lending commitments and letters of credit to provide for the risk of loss inherent in these arrangements. The allowance is computed using a methodology similar to that used to determine the allowance for credit losses for loans receivable, modified to take into account the probability of a draw-down on the commitment. The provision for credit losses on unfunded loan commitments is included in the provision for credit losses on the Corporation's condensed consolidated statements of income. The allowance for unfunded commitments is included in other liabilities in the condensed consolidated balance sheets. Note 4, "Loans Receivable and Allowance for Credit Losses," in the condensed consolidated financial statements provides more detail concerning the provision for credit losses related to the loan portfolio of the Corporation.

The following table presents activity in the allowance for credit losses on unfunded loan commitments for the three and six months ended June 30, 2022 and 2021, respectively:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
Beginning balance	$	586	$	0	$	0	$	0
Provision for credit losses on unfunded loan commitments (1)	0		0		586		0
Ending balance	586		$	0	$	586	$	0

(1) Excludes provision for credit losses related to the loan portfolio.

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Litigation

The Corporation is subject to claims and lawsuits that arise primarily in the ordinary course of business. It is the opinion of management the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on the consolidated financial position, results of operations and cash flows of the Corporation.

9. STOCK COMPENSATION

The Corporation has a stock incentive plan, which is administered by a committee of the Board of Directors and which permits the Corporation to provide various types of stock-based compensation to its key employees, directors, and/or consultants, including time-based and performance-based shares of restricted stock. The Corporation maintains the CNB Financial Corporation 2019 Omnibus Incentive Plan (the "2019 Stock Incentive Plan"), which was approved by the Corporation’s shareholders and became effective on April 16, 2019.

The 2019 Stock Incentive Plan provides for up to 507,671 shares of common stock to be awarded in the form of nonqualified options or restricted stock. For key employees, the vesting of time-based restricted stock is one-third, one-fourth, or one-fifth of the granted restricted shares per year, beginning one year after the grant date, with 100% vesting on the third, fourth or fifth anniversary of the grant date, respectively. Prior to 2018, for non-employee directors, the vesting schedule was one-third of the granted restricted shares per year, beginning one year after the grant date, with 100% vested on the third anniversary of the grant date. Beginning in 2018, stock compensation received by non-employee directors vests immediately.

At June 30, 2022, there was no unrecognized compensation cost related to stock-based compensation awarded under this plan and, except for the time-based and performance-based restricted stock awards disclosed below and in previous filings, no other stock-based compensation was granted during the three and six month period ended June 30, 2022 and 2021.

Compensation expense for the restricted stock awards is recognized over the requisite service period based on the fair value of the shares at the date of grant on a straight-line basis. Non-vested restricted stock awards are recorded as a reduction of additional paid-in-capital in shareholders’ equity until earned. Compensation expense resulting from time-based, performance-based and director restricted stock awards was $256 thousand and $757 thousand for the three and six months ended June 30, 2022 and $303 thousand and $812 thousand for the three and six months ended June 30, 2021. The total income tax benefit related to the recognized compensation cost of vested restricted stock awards was $54 thousand and $159 thousand for the three and six months ended June 30, 2022 and $64 thousand and $171 thousand for the three and six months ended June 30, 2021, respectively.

A summary of changes in time-based unvested restricted stock awards for the three months ended June 30, 2022 follows:


	Shares	Per Share Weighted Average Grant Date Fair Value
Unvested at beginning of period	88,891	$	20.10
Granted	0	0.00

Forfeited	(1,090)	25.06
Vested	(89)	25.27
Unvested at end of period	87,712	$	20.18

A summary of changes in time-based unvested restricted stock awards for the six months ended June 30, 2022 follows:


	Shares	Per Share Weighted Average Grant Date Fair Value
Unvested at beginning of period	69,643	$	24.18
Granted	44,369	26.71

Forfeited	(1,090)	25.06
Vested	(25,210)	24.78
Unvested at end of period	87,712	$	20.18

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The above tables exclude 11,790 shares in restricted stock awards that were granted at a weighted average fair value of $26.71 and immediately vested. As of June 30, 2022 and December 31, 2021, there was $1.9 million and $1.1 million of total unrecognized compensation cost related to unvested restricted stock awards, respectively. The fair value of shares vested was $2 thousand and $987 thousand during the three and six months ended June 30, 2022 and $19 thousand and $805 thousand during the three and six months ended June 30, 2021.

In addition to the time-based restricted stock disclosed above, the Corporation’s Board of Directors grants performance-based restricted stock awards (“PBRSAs”) to key employees. The number of PBRSAs will depend on certain performance conditions earned over a three year period and are also subject to service-based vesting. In 2022, awards with a maximum of 13,761 shares in aggregate were granted to key employees. In 2021, awards with a maximum of 18,210 shares in aggregate were granted to key employees. In 2020, awards with a maximum of 18,100 shares in aggregate were granted to key employees.

In 2021, the 2019 PBRSAs were fully earned and in 2022, 11,895 shares were fully distributed. The fair value of the shares distributed in 2022 was $318 thousand.

10. EARNINGS PER COMMON SHARE

Basic earnings per common share is computed by dividing net income, excluding net earnings allocated to participating securities, by the weighted average number of shares outstanding during the applicable period, excluding outstanding participating securities. Diluted earnings per common share is computed using the weighted average number of shares determined for the basic computation plus the dilutive effect of potential common shares issuable under certain stock compensation plans. For the three and six months ended June 30, 2022 and 2021, there were no outstanding stock options to include in the diluted earnings per common share calculations.

Unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are included in the computation of earnings per common share pursuant to the two-class method. The Corporation has determined that its outstanding unvested time-based stock awards are participating securities.

The computation of basic and diluted earnings per common share is shown below:


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Basic earnings per common share computation:
Net income per condensed consolidated statements of income	$	14,363	$	12,915	$	28,533	$	26,021
Net earnings allocated to participating securities	(68)		(47)		(132)		(92)
Net earnings allocated to common stock	$	14,295	$	12,868	$	28,401	$	25,929
Distributed earnings allocated to common stock	$	2,935	$	2,859	$	5,879	$	5,718
Undistributed earnings allocated to common stock	11,360		10,009		22,522		20,211
Net earnings allocated to common stock	$	14,295	$	12,868	$	28,401	$	25,929
Weighted average common shares outstanding, including shares considered participating securities	16,860		16,885		16,871		16,870
Less: Average participating securities	(78)		(60)		(75)		(58)
Weighted average shares	16,782		16,825		16,796		16,812
Basic earnings per common share	$	0.85	$	0.76	$	1.69	$	1.54
Diluted earnings per common share computation:
Net earnings allocated to common stock	$	14,295	$	12,868	$	28,401	$	25,929
Weighted average common shares outstanding for basic earnings per common share	16,782		16,825		16,796		16,812
Add: Dilutive effects of performance based-shares	33		0		33		0
Weighted average shares and dilutive potential common shares	16,815		16,825		16,829		16,812
Diluted earnings per common share	$	0.85	$	0.76	$	1.69	$	1.54

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11. DERIVATIVE INSTRUMENTS

On September 7, 2018, the Corporation executed an interest rate swap agreement with a 5-year term and an effective date of September 15, 2018 in order to hedge cash flows associated with $10.0 million of a subordinated trust preferred security that was issued by the Corporation during 2007 and elected cash flow hedge accounting for the agreement. The Corporation’s objective in using this derivative is to add stability to interest expense and to manage its exposure to interest rate risk. The interest rate swap involves the receipt of variable-rate amounts in exchange for fixed-rate payments from September 15, 2018 to September 15, 2023 without the exchange of the underlying notional amount. At June 30, 2022, the variable rate on the subordinated trust preferred security was 3.38% (LIBOR plus 155 basis points) and the Corporation was paying 4.53% (2.98% fixed rate plus 155 basis points).

As of June 30, 2022 and December 31, 2021, no derivatives were designated as fair value hedges or hedges of net investments in foreign operations. Additionally, the Corporation does not use derivatives for trading or speculative purposes and currently does not have any derivatives that are not designated as hedges.

The following tables provide information about the amounts and locations of activity related to the interest rate swaps designated as cash flow hedges within the Corporation’s condensed consolidated balance sheets and statements of income as of June 30, 2022 and December 31, 2021 and for the three and six months ended June 30, 2022 and 2021:


		Fair value as of
	Balance Sheet Location	June 30, 2022		December 31, 2021
Interest rate contracts	Accrued interest and other liabilities	$	18	$	(388)


For the Three Months Ended June 30, 2022	(a)		(b)	(c)		(d)	(e)
Interest rate contracts	$	110	Interest expense – subordinated notes and debentures	$	(51)	Other income	$	0
For the Six Months Ended June 30, 2022	(a)		(b)	(c)		(d)	(e)
Interest rate contracts	$	322	Interest expense – subordinated notes and debentures	$	(118)	Other income	$	0
For the Three Months Ended June 30, 2021	(a)		(b)	(c)		(d)	(e)
Interest rate contracts	$	50	Interest expense – subordinated notes and debentures	$	(62)	Other income	$	0
For the Six Months Ended June 30, 2021	(a)		(b)	(c)		(d)	(e)
Interest rate contracts	$	134	Interest expense – subordinated notes and debentures	$	(131)	Other income	$	0

(a)Amount of Gain or (Loss) Recognized in Other Comprehensive Loss on Derivative (Effective Portion), net of tax

(b)Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion)

(c)Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion)

(d)Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)

(e)Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)

Amounts reported in accumulated other comprehensive income (loss) related to the interest rate swap will be reclassified to interest expense as interest payments are made on the subordinated notes and debentures. Such amounts reclassified from accumulated other comprehensive income (loss) to interest expense in the next twelve months are expected to be $115 thousand.

As of June 30, 2022 and December 31, 2021, a cash collateral balance in the amount of $1.1 million and $1.1 million, respectively, was maintained with a counterparty to the interest rate swaps. These balances are included in interest-bearing deposits with other banks on the condensed consolidated balance sheets.

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The Corporation entered into certain interest rate swap contracts that are not designated as hedging instruments. These derivative contracts relate to transactions in which the Corporation enters into an interest rate swap with a customer while at the same time entering into an offsetting interest rate swap with another financial institution. In connection with each swap transaction, the Corporation agrees to pay interest to the customer on a notional amount at a variable interest rate and receive interest from the customer on a similar notional amount at a fixed interest rate. Concurrently, the Corporation agrees to pay another financial institution the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. The transaction allows the Corporation’s customers to effectively convert a variable rate loan to a fixed rate. Because the Corporation acts as an intermediary for its customer, changes in the fair value of the underlying derivative contracts offset each other and do not impact the Corporation’s results of operations.

The Corporation pledged cash collateral to another financial institution with a balance $373 thousand as of June 30, 2022 and $3.4 million as of December 31, 2021. This balance is included in interest-bearing deposits with other banks on the condensed consolidated balance sheets. The Corporation may require its customers to post cash or securities as collateral on its program of back-to-back swaps depending upon the specific facts and circumstances surrounding each loan and individual swap. In addition, certain language is included in the International Swaps and Derivatives Association agreement and loan documents where, in default situations, the Corporation is permitted to access collateral supporting the loan relationship to recover any losses suffered on the derivative asset or liability. The Corporation may be required to post additional collateral to swap counterparties in the future in proportion to potential increases in unrealized loss positions.

The following table provides information about the amounts and locations of activity related to the back-to-back interest rate swaps within the Corporation’s condensed consolidated balance sheet as of June 30, 2022 and December 31, 2021:


	Notional Amount		Weighted Average Maturity (in years)	Weighted Average Fixed Rate		Weighted Average Variable Rate	Fair Value
June 30, 2022
3rd Party interest rate swaps	$	32,095	5.44	4.12	%	1 month LIBOR + 2.27%	$	441	(a)
Customer interest rate swaps	(32,095)		5.44	4.12	%	1 month LIBOR + 2.27%	(441)		(b)
December 31, 2021
3rd Party interest rate swaps	$	32,768	5.8	4.12	%	1 month LIBOR + 2.27%	$	2,124	(a)
Customer interest rate swaps	(32,768)		5.8	4.12	%	1 month LIBOR + 2.27%	(2,124)		(b)

(a)Reported in accrued interest receivable and other assets within the condensed consolidated balance sheets

(b)Reported in accrued interest payable and other liabilities within the condensed consolidated balance sheets

12. FAIR VALUE

Fair Value Measurement

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The following three levels of inputs are used to measure fair value:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

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The Corporation used the following methods and significant assumptions to estimate fair value:

Investment Securities: The fair values of most equity securities and debt securities AFS are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1) or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather relying on the securities’ relationship to other benchmark quoted securities (Level 2). These models utilize the market approach with standard inputs that include, but are not limited to benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data. For certain securities that observable inputs about the specific issuer are not available, fair values are estimated using observable data from other securities presumed to be similar or other market data on other similar securities (Level 3).

Loans Held for Sale: Loans held for sale are carried at the lower of cost or fair value, which is evaluated on a loan-level basis. The fair value of loans held for sale is determined using quoted prices for similar assets, adjusted for specific attributes of that loan or other observable market data, such as outstanding commitments from third party investors (Level 2).

Derivatives: The fair values of derivatives are based on valuation models using observable market data as of the measurement date (Level 2). The Corporation's derivatives are traded in an over-the-counter market where quoted market prices are not always available. Therefore, the fair values of derivatives are determined using quantitative models that utilize multiple market inputs. The inputs will vary based on the type of derivative, but could include interest rates, prices and indices to generate continuous yield or pricing curves, prepayment rates, and volatility factors to value the position. The majority of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services.

Individually Evaluated Loans: The fair value of individually evaluated loans with specific allocations of the allowance for credit losses is generally based on recent real estate appraisals prepared by third-parties. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Management also adjusts appraised values based on the length of time that has passed since the appraisal date and other factors. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower's financial statements, or aging reports, adjusted or discounted based on management's historical knowledge, changes in market conditions from the time of the valuation, and management's expertise and knowledge of the client and client's business, resulting in a Level 3 fair value classification. Individually evaluated loans are evaluated on a quarterly basis for additional impairment and adjusted in accordance with the allowance policy.

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Assets and liabilities measured at fair value on a recurring basis are as follows at June 30, 2022 and December 31, 2021:


			Fair Value Measurements at June 30, 2022 Using:
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	Total		(Level 1)		(Level 2)		(Level 3)
Assets:
Securities Available-For-Sale:
U.S. Government sponsored entities	$	2,211	$	0	$	2,211	$	0
States and political subdivisions	103,509		0		103,509		0
Residential and multi-family mortgage	244,513		0		244,513		0
Corporate notes and bonds	39,080		0		39,080		0
Pooled SBA	15,094		0		15,094		0

Total Securities Available-For-Sale	$	404,407	$	0	$	404,407	$	0
Interest Rate swaps	$	441	$	0	$	441	$	0
Equity Securities:
Corporate equity securities	$	6,272	$	6,272	$	0	$	0
Mutual funds	2,591		2,591		0		0

Corporate notes and bonds	676		676		0		0

Total Trading Securities	$	9,539	$	9,539	$	0	$	0
Liabilities:
Interest Rate Swaps	$	(423)	$	0	$	(423)	$	0

























			Fair Value Measurements at December 31, 2021 Using:
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	Total		(Level 1)		(Level 2)		(Level 3)
Assets:
Securities Available-For-Sale:
U.S. Government sponsored entities	$	111,748	$	0	$	111,748	$	0
States and political subdivisions	103,712		0		103,712		0
Residential and multi-family mortgage	434,635		4,995		429,640		0
Corporate notes and bonds	28,064		0		28,064		0
Pooled SBA	19,032		0		19,032		0

Total Securities Available-For-Sale	$	697,191	$	4,995	$	692,196	$	0
Interest Rate swaps	$	2,124	$	0	$	2,124	$	0
Equity Securities:
Corporate equity securities	$	6,715	$	6,715	$	0	$	0
Mutual funds	2,566		2,566		0		0
Certificates of deposit	506		506		0		0
Corporate notes and bonds	579		579		0		0

Total Trading Securities	$	10,366	$	10,366	$	0	$	0
Liabilities:
Interest Rate Swaps	$	(2,512)	$	0	$	(2,512)	$	0

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The table below presents a reconciliation of the fair value of securities AFS measured on a recurring basis using significant unobservable inputs (Level 3) for the three months ended June 30, 2021:


	Corporate Notes and Bonds
Balance, April 1, 2021	$	2,250
Purchases	6,000
Total gains or (losses):
Included in other comprehensive income (loss)	76
Settlements	0
Transfers into Level 3	1,500
Transfers out of Level 3	0
Balance, June 30, 2021	$	9,826

The Corporation's corporate notes and bonds with a fair value of $1.5 million for the three months ended June 30, 2021 were transferred out of Level 2 and into Level 3 because of a lack of observable market data for these investments due to a decrease in the market activity for these securities.

The table below presents a reconciliation of the fair value of securities AFS measured on a recurring basis using significant unobservable inputs (Level 3) for the six months ended June 30, 2021:


	States and Political Subdivisions		Corporate Notes and Bonds
Balance, January 1, 2021	$	64	$	0
Purchases	0		6,750
Total gains or (losses):
Included in other comprehensive income (loss)	0		76
Settlements	(64)		0
Transfers into Level 3	0		3,000
Transfers out of Level 3	0		0
Balance, June 30, 2021	$	0	$	9,826

The Corporation's corporate notes and bonds with a fair value of $3.0 million for the six months ended June 30, 2021 were transferred out of Level 3 and into Level 2 because of available observable market data for these investments.

Assets and liabilities measured at fair value on a non-recurring basis are as follows at June 30, 2022 and December 31, 2021:


			Fair Value Measurements at June 30, 2022 Using
Description	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Collateral-dependent loans receivable:
Farmland	$	895	$	0	$	0	$	895
Owner-occupied, nonfarm nonresidential properties	1,163		0		0		1,163
Commercial and industrial	1,723		0		0		1,723

Multifamily (5 or more) residential properties	543		0		0		543
Non-owner occupied, nonfarm nonresidential	2,746		0		0		2,746
Residential Mortgages secured by first liens	650		0		0		650

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			Fair Value Measurements at December 31, 2021 Using
Description	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Collateral-dependent loans receivable:
Farmland	$	920	$	0	$	0	$	920
Owner-occupied, nonfarm nonresidential properties	194		0		0		194
Commercial and industrial	3,102		0		0		3,102
Other construction loans and all land development loans and other land loans	248		0		0		248
Multifamily (5 or more) residential properties	627		0		0		627
Non-owner occupied, nonfarm nonresidential	2,889		0		0		2,889

A loan is considered to be a collateral dependent loan when, based on current information and events, the Corporation expects repayment of the financial assets to be provided substantially through the operation or sale of the collateral and the Corporation has determined that the borrower is experiencing financial difficulty as of the measurement date. The allowance for credit losses is measured by estimating the fair value of the loan based on the present value of expected cash flows, the market price of the loan, or the underlying fair value of the loan’s collateral. For real estate loans, fair value of the loan’s collateral is determined by third-party appraisals, which are then adjusted for the estimated selling and closing costs related to liquidation of the collateral. For this asset class, the actual valuation methods (income, sales comparable, or cost) vary based on the status of the project or property. For example, land is generally based on the sales comparable method while construction is based on the income and/or sales comparable methods. The unobservable inputs may vary depending on the individual assets with no one of the three methods being the predominant approach. The Corporation reviews the third-party appraisal for appropriateness and may adjust the value downward to consider selling and closing costs. For non-real estate loans, fair value of the loan’s collateral may be determined using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business.

The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at June 30, 2022:

Fair
value

Valuation
Technique

Unobservable Inputs

Range
(Weighted
Average)

Collateral-dependent loans receivable:

Farmland

895

Valuation of third party appraisal on underlying collateral

Loss severity rates

60% (60%)

Owner-occupied, nonfarm nonresidential properties

1,163

Valuation of third party appraisal on underlying collateral

Loss severity rates

0%-60% (37%)

Commercial and industrial

1,723

Valuation of third party appraisal on underlying collateral

Loss severity rates

0%-50% (32%)

Multifamily (5 or more) residential properties

543

Valuation of third party appraisal on underlying collateral

Loss severity rates

0%-60% (23%)

Non-owner occupied, nonfarm nonresidential

2,746

Valuation of third party appraisal on underlying collateral

Loss severity rates

25%-60% (35%)

Residential Mortgages secured by first liens

650

Valuation of third party appraisal on underlying collateral

Loss severity rates

25%-57% (40%)

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The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at December 31, 2021:

Fair
value

Valuation
Technique

Unobservable Inputs

Range
(Weighted
Average)

Collateral-dependent loans receivable:

Farmland

920

Valuation of third party appraisal on underlying collateral

Loss severity rates

60% (60%)

Owner-occupied, nonfarm nonresidential properties

194

Valuation of third party appraisal on underlying collateral

Loss severity rates

0%-60% (57%)

Commercial and industrial

3,102

Valuation of third party appraisal on underlying collateral

Loss severity rates

0%-59% (42%)

Other construction loans and all land development loans and other land loans

248

Valuation of third party appraisal on underlying collateral

Loss severity rates

25% (25%)

Multifamily (5 or more) residential properties

627

Valuation of third party appraisal on underlying collateral

Loss severity rates

0%-57% (26%)

Non-owner occupied, nonfarm nonresidential

2,889

Valuation of third party appraisal on underlying collateral

Loss severity rates

25%-60% (34%)

Fair Value of Financial Instruments

The following table presents the carrying amount and fair value of financial instruments at June 30, 2022:


	Carrying		Fair Value Measurement Using:						Total
	Amount		Level 1		Level 2		Level 3		Fair Value
ASSETS
Cash and cash equivalents	$	284,154	$	284,154	$	0	$	0	$	284,154
Debt securities available-for-sale	404,407		0		404,407		0		404,407
Debt securities held-to-maturity	413,310		0		389,933		0		389,933
Equity securities	9,539		9,539		0		0		9,539
Loans held for sale	843		0		846		0		846
Net loans receivable	3,869,210		0		0		3,869,617		3,869,617
FHLB and other restricted stock holdings and investments	24,484		n/a		n/a		n/a		n/a

Interest rate swaps	441		0		441		0		441
Accrued interest receivable	16,731		0		2,865		13,866		16,731
LIABILITIES
Deposits	$	(4,701,820)	$	(4,397,542)	$	(307,246)	$	0	$	(4,704,788)

Subordinated debentures	(20,620)		0		(14,084)		0		(14,084)
Subordinated notes, net of unamortized issuance costs	(83,812)		0		(83,922)		0		(83,922)
Interest rate swaps	(423)		0		(423)		0		(423)
Accrued interest payable	(567)		0		(567)		0		(567)

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The following table presents the carrying amount and fair value of financial instruments at December 31, 2021:


	Carrying		Fair Value Measurement Using:						Total
	Amount		Level 1		Level 2		Level 3		Fair Value
ASSETS
Cash and cash equivalents	$	732,198	$	732,198	$	0	$	0	$	732,198
Debt securities available-for-sale	697,191		4,995		692,196		0		697,191
Equity securities	10,366		10,366		0		0		10,366
Loans held for sale	849		0		858		0		858
Net loans receivable	3,597,204		0		0		3,613,452		3,613,452
FHLB and other restricted stock holdings and investments	23,276		n/a		n/a		n/a		n/a

Interest rate swaps	2,124		0		2,124		0		2,124
Accrued interest receivable	15,516		16		2,171		13,329		15,516
LIABILITIES
Deposits	$	(4,715,619)	$	(4,329,167)	$	(391,850)	$	0	$	(4,721,017)

Subordinated notes, net of unamortized issuance costs	(104,281)		0		(92,675)		0		(92,675)
Interest rate swaps	(2,512)		0		(2,512)		0		(2,512)
Accrued interest payable	(886)		0		(886)		0		(886)

While estimates of fair value are based on management’s judgment of the most appropriate factors as of the balance sheet date, there is no assurance that the estimated fair values would have been realized if the assets had been disposed of or the liabilities settled at that date, since market values may differ depending on various circumstances. The estimated fair values would also not apply to subsequent dates. The fair value of other equity interests is based on the net asset values provided by the underlying investment partnership. ASU 2015-7 removes the requirement to categorize within the fair value hierarchy all investments measured using the net asset value per share practical expedient and related disclosures. In addition, other assets and liabilities that are not financial instruments, such as premises and equipment, are not included in the disclosures.

Also, non-financial assets such as, among other things, the estimated earnings power of core deposits, the earnings potential of trust accounts, the trained workforce, and customer goodwill, which typically are not recognized on the balance sheet, may have value but are not included in the fair value disclosures.

13. REVENUE FROM CONTRACTS WITH CUSTOMERS

All of the Corporation’s revenue from contracts with customers in the scope of ASC 606 is recognized within Non-Interest Income. The following table presents the Corporation's Non-Interest Income by revenue stream and reportable segment for the three and six months ended June 30, 2022 and 2021. Items outside the scope of ASC 606 are noted as such.


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Non-interest Income
Service charges on deposit accounts	$	1,771	$	1,446	$	3,528	$	2,794
Wealth and asset management fees	1,803		1,765		3,586		3,287
Mortgage banking (1)	292		536		767		1,771
Card processing and interchange income	1,992		2,079		3,801		3,913
Net gains (losses) on sales of securities (1)	0		0		651		0
Other income	2,288		2,031		5,467		4,331
Total non-interest income	$	8,146	$	7,857	$	17,800	$	16,096

(1) Not within scope of ASU 2014-9

Management determined that the primary sources of revenue emanating from interest and dividend income on loans receivable and investment securities along with non-interest revenue resulting from security gains, loan servicing, gains on the sale of loans receivable, commitment fees, fees from financial guarantees, certain credit card fees, gains (losses) on sale of other real estate owned not financed by the Corporation, is not within the scope of ASU 2014-9.

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The types of non-interest income within the scope of the standard that are material to the condensed consolidated financial statements are services charges on deposit accounts, wealth and asset management fee income, card processing and interchange income, and other income.

Service charges on deposit accounts: The Corporation earns fees from its deposit customers for transaction-based, account maintenance, and overdraft services. Transaction-based fees, which include services such as ATM use fees, stop payment charges, statement rendering, and ACH fees, are recognized at the time the transaction is executed, as that is the point in time the Corporation fulfills the customer’s request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Corporation satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Services charges on deposits are withdrawn from the customer’s account balance.

Wealth and asset management fees: The Corporation earns wealth and asset management fees from its contracts with trust and brokerage customers to manage assets for investment, and/or to transact on their accounts. These fees are primarily earned over time as the Corporation provides the contracted monthly or quarterly services and are generally assessed based on a tiered scale of the market value of assets under management at month end. Fees for these services are billed to customers on a monthly or quarterly basis and are recorded as revenue at the end of the period for which the wealth and asset management services have been performed. Other performance obligations, such as the delivery of account statements to customers, are generally considered immaterial to the overall transaction price.

Card processing and interchange income: The Corporation earns interchange fees from check card and credit card transactions conducted through the Visa payment network. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder.

Other income: The Corporation's other income includes sources such as bank owned life insurance, changes in fair value and realized gains on sales of trading securities, certain service fees, gains (losses) on sales of fixed assets, and gains (losses) on sale of other real estate owned. The service fees are recognized in the same manner as the service charges mentioned above. While gains (losses) on the sale of other real estate owned are within the scope of ASU 2014-9 if financed by the Corporation, the Corporation does not finance the sale of transactions. The revenue on the sale is recorded upon the transfer of control of the property to the buyer and the other real estate owned asset is derecognized.

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ITEM 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

GENERAL OVERVIEW

The following discussion and analysis of the condensed consolidated financial statements of the Corporation is presented to provide insight into management’s assessment of financial results. The terms “we”, “us” and “our” refer to CNB Financial Corporation and its subsidiaries. The financial condition and results of operations of the Corporation and its consolidated subsidiaries are not necessarily indicative of future performance.

The Corporation’s subsidiary, the Bank, provides financial services to individuals and businesses primarily within its primary market area of the Pennsylvania counties of Blair, Cambria, Cameron, Centre, Clearfield, Crawford, Elk, Indiana, Jefferson and McKean. ERIEBANK, a division of the Bank, operates in the Pennsylvania counties of Crawford, Erie, and Warren and in the Ohio counties of Ashtabula, Cuyahoga and Lake. FCBank, a division of the Bank, operates in the Ohio counties of Crawford, Richland, Ashland, Wayne, Marion, Morrow, Knox, Delaware and Franklin. BankOnBuffalo, a division of the Bank, operates in the New York counties of Erie and Niagara. Ridge View Bank, a division of the Bank, operates in Southwest, Virginia. The Bank is subject to regulation, supervision and examination by the Pennsylvania State Department of Banking as well as the FDIC.

In addition to the Bank, the Corporation has four other subsidiaries. CNB Securities Corporation is incorporated in Delaware and currently maintains investments in debt and equity securities. CNB Insurance Agency, incorporated in Pennsylvania, provides for the sale of nonproprietary annuities and other insurance products. CNB Risk Management, Inc. is a Delaware-based captive insurance company which insures against certain risks unique to the operations of the Corporation and its subsidiaries and for which insurance may not be currently available or economically feasible in today's insurance marketplace. Holiday, incorporated in Pennsylvania, offers small balance unsecured loans and secured loans, primarily collateralized by automobiles and equipment, to borrowers with higher risk characteristics.

The following discussion should be read in conjunction with the Corporation’s consolidated financial statements and notes thereto for the year ended December 31, 2021, included in its Annual Report on Form 10-K for the year ended December 31, 2021, and in conjunction with the condensed consolidated financial statements and notes thereto included in Item 1 of this report. Operating results for the three and six months ended June 30, 2022 are not necessarily indicative of the results for the full year ending December 31, 2022, or any future period.

NON-GAAP FINANCIAL INFORMATION

This report contains references to financial measures that are not defined in GAAP. Management uses non-GAAP financial information in its analysis of the Corporation’s performance. Management believes that these non-GAAP measures provide a greater understanding of ongoing operations, enhance comparability of results of operations with prior periods and show the effects of significant gains and charges in the periods presented. The Corporation’s management believes that investors may use these non-GAAP measures to analyze the Corporation’s financial performance without the impact of unusual items or events that may obscure trends in the Corporation’s underlying performance. This non-GAAP data should be considered in addition to results prepared in accordance with GAAP, and is not a substitute for, or superior to, GAAP results. Limitations associated with non-GAAP financial measures include the risks that persons might disagree as to the appropriateness of items included in these measures and that different companies might calculate these measures differently.

Non-GAAP measures reflected within the discussion below include:

•Tangible book value per share;

•Tangible common equity/tangible assets;

•Adjusted allowance/loans receivable, net of PPP related loans;

•Net interest margin (fully tax-equivalent basis);

•Efficiency ratio;

•Pre-provision net revenue ("PPNR");

•Return on average tangible common equity; and

•Non-interest income excluding realized gains on AFS securities.

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Management considers return on average assets, return on average equity, return on average tangible common equity, earnings per common share, asset quality, net interest margin, and other metrics as key measures of the financial performance of the Corporation. The interest rate environment will continue to play an important role in the future earnings of the Corporation. To address the challenging interest rate and competitive environments, the Corporation continues to evaluate, develop and implement strategies necessary to support its ongoing financial performance objectives and future growth goals. Additionally, management frequently evaluates the potential impact of economic and geopolitical events that may have an impact on the credit risk profile of its customers and develops proactive strategies to mitigate such potential impacts on the Corporation’s loan portfolio.

While non-interest expenses are expected to increase with the growth of the Corporation, management’s growth strategies are also expected to result in an increase in earning assets as well as enhanced revenue, which is expected to more than offset increases in non-interest expenses in 2022 and beyond.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents totaled $284.2 million at June 30, 2022, including additional excess liquidity of $217.8 million held at the Federal Reserve. Cash and cash equivalents totaled $732.2 million at December 31, 2021. The decrease in cash and cash equivalents from December 31, 2021 to June 30, 2022 was due primarily to robust loan growth and an increase in investment purchases, to position a portion of the excess liquidity into higher earning assets. During the same period, total deposits decreased approximately $13.8 million or 0.6% on an annualized basis. As part of the Corporation’s strategic focus on attracting and retaining core customer relationship, non-maturity deposits totaled $4.4 billion, or 93.5% of total deposits, at June 30, 2022, reflecting an increase of $68.4 million, or 3.2% on an annualized basis, from $4.3 billion, or 91.8% of total deposits, at December 31, 20221.

Management believes the liquidity needs of the Corporation are satisfied primarily by the current balance of cash and cash equivalents, customer deposits, FHLB financing, and the portions of the securities and loan portfolios that mature within one year. The Corporation expects that these sources of funds will enable it to meet cash obligations and off-balance sheet commitments as they come due. In addition to the above noted liquidity sources, the Corporation maintains access to the Federal Reserve discount window.

SECURITIES

AFS investments and equity securities combined totaled $413.9 million and $707.6 million at June 30, 2022 and December 31, 2021, respectively. At June 30, 2022, the total balance of investments classified as HTM securities was $413.3 million. There were no investments classified as HTM at December 31, 2021. In a strategy to lessen the impact of the current interest rate environment on the Corporation’s equity and tangible equity, during the first quarter of 2022 management evaluated the Corporation’s investment portfolio and reclassified from AFS to HTM approximately $101.1 million in fair value U.S. Government agency securities and U.S. Treasury notes. Additionally, during the first quarter of 2022, purchases of certain government-sponsored investments were classified directly into HTM. During the second quarter of 2022,the Corporation reclassified from AFS to HTM approximately $112.6 million in fair value mortgage-backed securities and recorded additional purchases of certain residential and multi-family mortgage investments were classified directly into HTM.

The Corporation’s objective is to maintain the investment securities portfolio at an appropriate level to balance the earnings and liquidity provided by the portfolio. Note 3, "Securities," in the condensed consolidated financial statements provides more detail concerning the composition of the Corporation’s securities portfolio and the process for evaluating securities for impairment.

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The following table summarizes the maturity distribution schedule with corresponding weighted-average yields of securities AFS as of June 30, 2022. Weighted-average yields have been computed on a fully taxable-equivalent basis using a tax rate of 21%. Mortgage-backed securities are included in maturity categories based on their stated maturity date.


	June 30, 2022
	Within One Year				After One But Within Five Years				After Five But Within Ten Years				After Ten Years				Total
	$ Amt.		Yield		$ Amt.		Yield		$ Amt.		Yield		$ Amt.		Yield		$ Amt.		Yield
U.S. Government Sponsored Entities	$	437	2.29	%	$	1,774	0.65	%	$	0	0.00	%	$	0	0.00	%	2,211		0.97	%
State and Political Subdivisions	4,176		3.29	%	22,040		2.65	%	52,901		2.15	%	24,392		2.63	%	103,509		2.42	%
Residential and multi-family mortgage	0		0.00	%	8,538		2.89	%	30,392		2.17	%	205,583		1.50	%	244,513		1.63	%
Corporate notes and bonds	0		0.00	%	9,593		2.79	%	28,487		4.00	%	1,000		5.50	%	39,080		3.74	%
Pooled SBA	0		0.00	%	77		4.76	%	7,166		3.12	%	7,851		1.86	%	15,094		2.47	%
Total	$	4,613	3.20	%	$	42,022	2.65	%	$	118,946	2.66	%	$	238,826	1.64	%	$	404,407	2.06	%

The following table summarizes the maturity distribution schedule with corresponding weighted-average yields of securities HTM as of June 30, 2022.


	June 30, 2022
	Within One Year				After One But Within Five Years				After Five But Within Ten Years				After Ten Years				Total
	$ Amt.		Yield		$ Amt.		Yield		$ Amt.		Yield		$ Amt.		Yield		$ Amt.		Yield
U.S. Government Sponsored Entities	$	5,125	0.58	%	$	232,236	1.55	%	$	64,786	1.64	%	$	5,487	2.34	%	$	307,634	1.57	%
Residential and multi-family mortgage	$	0	0.00	%	$	4,017	2.81	%	$	0	0.00	%	$	101,659	3.74	%	$	105,676	3.70	%
Total	$	5,125	0.58	%	$	236,253	1.57	%	$	64,786	1.64	%	$	107,146	3.67	%	$	413,310	2.11	%

The following table summarizes the weighted average modified duration of securities AFS as of June 30, 2022.


			Weighted Average Modified Duration (in Years)
U.S. Government Sponsored Entities			1.58
State and Political Subdivisions			6.44
Residential and multi-family mortgage			4.72
Corporate notes and bonds			4.96
Pooled SBA			2.79
Total			5.09

The following table summarizes the weighted average modified duration of securities HTM as of June 30, 2022.


			Weighted Average Modified Duration (in Years)
U.S. Government Sponsored Entities			3.86
Residential and multi-family mortgage			2.97
Total			3.63

The portfolio contains no holdings of a single issuer that exceeds 10% of shareholders’ equity other than U.S. government sponsored entities.

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The Corporation generally purchases debt securities over time and does not attempt to "time" its transactions, which allows for more efficient management of fluctuations in the interest rate environment. The Corporation's strategy given the current environment is to focus on lower risk securities, shorter durations that complement the current portfolio investment ladder, and consistent reinvestment of cash flows to replace lower earning assets.

The Corporation monitors the earnings performance and the effectiveness of the liquidity of the securities portfolio on a regular basis through meetings of the Asset/Liability Committee ("ALCO"). The ALCO also reviews and manages interest rate risk for the Corporation. Through active balance sheet management and analysis of the securities portfolio, a sufficient level of liquidity is maintained to satisfy depositor requirements and various credit needs of our customers.

LOANS RECEIVABLE

Note 4, "Loans Receivable and Allowance for Credit Losses," in the condensed consolidated financial statements provides more detail concerning the loan portfolio of the Corporation.

At June 30, 2022, loans, excluding the impact of (i) syndicated loans and (ii) PPP loans, net of PPP-related fees (such loans, the "PPP-related loans"), totaled $3.8 billion, representing an increase of $290.5 million, or 8.4% (16.9% annualized), from December 31, 2021. This growth was primarily driven by the Corporation's ongoing expansion in the Cleveland and Southwest Virginia regions, combined with continued strong growth in its Private Banking division, and increased lending opportunities in all other regions in which the Corporation operates.

As part of a continued targeted liquidity management strategy to invest excess funds into high credit-quality assets, for the six months ended June 30, 2022, the Corporation’s balance sheet reflected an increase in syndicated lending balances of $27.4 million compared to December 31, 2021. The syndicated loan portfolio totaled $153.2 million, or 3.9% of total loans receivable, excluding PPP-related loans, at June 30, 2022. The Corporation expects the level of this loan portfolio to remain stable or decrease going forward.

Loan Origination/Risk Management

The Corporation has certain lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk. Management reviews and approves these policies and procedures on a regular basis. A reporting system supplements the review process by providing management with frequent reports related to loan production, loan quality, concentrations of credit, loan delinquencies and nonperforming and potential problem loans. Diversification in the loan portfolio is a means of managing risk associated with fluctuations in economic conditions. The Corporation has not underwritten any hybrid loans, payment option loans, or low documentation/no documentation loans. Variable rate loans are generally underwritten at the fully indexed rate. Loan underwriting policies and procedures have not changed materially between any periods presented. As discussed more fully above, syndicated loan purchases are underwritten utilizing the same process as the Corporation’s originated loans.

The Corporation has begun to explore the credit and reputational risks associated with climate change and their potential impact on the foregoing, while closely monitoring regulatory developments on climate risk. This includes, among other things, researching and developing a formalized approach to considering climate change related risks in the Corporation's underwriting processes. This approach will be impacted, in part, by the accessibility and reliability of both customer climate risk data and climate risk data in general. One of the objectives of these efforts is to enable the Corporation to better understand the climate change related risks associated with the Corporation's customers' business activities and to be able to monitor their response to those risks and their ultimate impact on the Corporation's customers.

Although it is possible that the on-going effects of COVID-19 could continue to impact demand for our loan products, the Corporation expects to continue to achieve its loan growth objectives in 2022 as a result of its diversified markets and its focus on core customer acquisition strategies.

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Maturities and Sensitivities of Loans Receivable to Changes in Interest Rate

The following table presents the maturity distribution of the Corporation's loans receivable at June 30, 2022. The table also presents the portion of loans receivable that have fixed interest rates or variable interest rates that fluctuate over the life of the loans in accordance with changes in an interest rate index.


	June 30, 2022
	Due in One Year or Less		After One, but Within Five Years		After Five but Within Fifteen Years		After Fifteen Years		Total
Loans Receivable with Fixed Interest Rate
Farmland	$	139	$	2,313	$	7,480	$	933	$	10,865
Owner-occupied, nonfarm nonresidential properties	7,234		23,507		15,473		5,366		51,580
Agricultural production and other loans to farmers	0		312		0		0		312
Commercial and Industrial	3,550		214,439		85,710		175		303,874
Obligations (other than securities and leases) of states and political subdivisions	2,858		9,747		53,178		38,970		104,753
Other loans	12		810		596		290		1,708
Other construction loans and all land development and other land loans (1)	18,954		14,502		10,046		1,306		44,808
Multifamily (5 or more) residential properties	1,881		55,833		4,263		4,667		66,644
Non-owner occupied, nonfarm nonresidential properties	11,308		61,816		39,402		1,340		113,866
1-4 Family Construction (1)	2,646		0		682		5,672		9,000
Home equity lines of credit	7		107		656		431		1,201
Residential Mortgages secured by first liens	1,305		24,641		253,232		118,004		397,182
Residential Mortgages secured by junior liens	157		6,647		44,976		5,712		57,492
Other revolving credit plans	6		14		14		2		36
Automobile	412		14,214		5,533		0		20,159
Other consumer	7,030		33,127		8,847		2,578		51,582
Credit cards	0		0		0		0		0
Overdrafts	0		0		0		0		0
Total	$	57,499	$	462,029	$	530,088	$	185,446	$	1,235,062

Loans Receivable with Variable or Floating Interest Rate
Farmland	$	530	$	2,902	$	10,186	$	7,166	$	20,784
Owner-occupied, nonfarm nonresidential properties	19,636		38,669		299,417		54,620		412,342
Agricultural production and other loans to farmers	531		78		176		0		785
Commercial and Industrial	242,424		124,351		85,458		3,310		455,543
Obligations (other than securities and leases) of states and political subdivisions	0		1,529		13,470		23,736		38,735
Other loans	2,337		4,142		1,432		4,905		12,816
Other construction loans and all land development and other land loans (1)	71,185		119,065		92,066		14,275		296,591
Multifamily (5 or more) residential properties	16,604		23,549		89,089		16,675		145,917
Non-owner occupied, nonfarm nonresidential properties	57,529		179,969		324,053		59,163		620,714
1-4 Family Construction (1)	4,688		4,216		3,157		19,929		31,990
Home equity lines of credit	4,915		7,714		68,557		33,449		114,635
Residential Mortgages secured by first liens	5,942		15,432		155,907		301,511		478,792
Residential Mortgages secured by junior liens	1,430		335		2,643		312		4,720
Other revolving credit plans	2,070		3,083		22,677		902		28,732
Automobile	0		7		0		0		7
Other consumer	0		40		61		82		183
Credit cards	11,049		0		0		0		11,049
Overdrafts	356		0		0		0		356
Total	$	441,226	$	525,081	$	1,168,349	$	540,035	$	2,674,691

11-4 family construction loans and other construction loans and all land development and other land loans segments include loans that are construction to permanent loans in which the loan segment will change when the construction period has concluded.

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Loans Receivable Concentration

At June 30, 2022, no industry concentration existed which exceeded 10% of the total loan portfolio.

Loans Receivable Credit Quality

The following table presents information concerning the loan portfolio delinquency and other nonperforming assets at June 30, 2022 and December 31, 2021:


	June 30, 2022			December 31, 2021
Nonaccrual loans	$	18,954		$	19,420
Accrual loans greater than 90 days past due	1,060			168
Total nonperforming loans	20,014			19,588
Other real estate owned	686			707
Total nonperforming assets	$	20,700		$	20,295
Loans modified in a troubled debt restructuring (TDR):
Performing TDR loans	$	10,596		$	9,006
Nonperforming TDR loans (1)	7,236			7,600
Total TDR loans	$	17,832		$	16,606
Total loans receivable	$	3,909,753		$	3,634,792

Nonaccrual loans as a percentage of total loans receivable	0.48		%	0.53		%
Total assets	$	5,299,315		$	5,328,939
Nonperforming assets as a percentage of total assets	0.39		%	0.38		%
Allowance for credit losses on loans receivable	$	40,543		$	37,588
Ratio of allowance for credit losses to nonaccrual loans	213.90		%	193.55		%

(1) Nonperforming TDR loans are also included in the balance of nonaccrual loans.

Total nonperforming assets were $20.7 million, or 0.39% of total assets, as of June 30, 2022, compared to $20.3 million, or 0.38% of total assets, as of December 31, 2021. In addition, the allowance for credit losses as a percentage of nonaccrual loans was 213.90% at June 30, 2022, compared to 193.55% at December 31, 2021

The Corporation has established written lending policies and procedures that require underwriting standards, loan documentation, and credit analysis standards to be met prior to funding a loan. Subsequent to the funding of a loan, ongoing review of credits is required. Credit reviews are performed quarterly by an outsourced loan review firm and cover approximately 65% of the commercial loan portfolio on an annual basis. In addition, the external independent loan review firm reviews classified assets, past due loans and nonaccrual loans quarterly.

Potential problem loans consist of loans that are performing in accordance with contractual terms but for which management has concerns about the ability of a borrower to continue to comply with contractual repayment terms because of the borrower’s potential operating or financial difficulties. Management monitors these "watchlist" loans monthly to determine potential losses within the commercial loan portfolio. The "watchlist" is comprised of all credits risk rated special mention, substandard and doubtful.

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ALLOWANCE FOR CREDIT LOSSES

The amount of each allowance for credit losses account represents management's best estimate of current expected credit losses on these financial instruments considering available information, from internal and external sources, relevant to assessing exposure to credit loss over the contractual term of the instrument. Relevant available information includes historical credit loss experience, current conditions and reasonable and supportable forecasts. While historical credit loss experience provides the basis for the estimation of expected credit losses, adjustments to historical loss information may be made for differences in current portfolio-specific risk characteristics, environmental conditions or other relevant factors. While management utilizes its best judgment and information available, the ultimate adequacy of the Corporation's allowance for credit losses account is dependent upon a variety of factors beyond the Corporation's control, including the performance of the Corporation's portfolios, the economy, changes in interest rates and the view of the regulatory authorities toward classification of assets. The adequacy of the allowance for credit losses is subject to a formal analysis by the Credit Administration and Finance Departments of the Corporation. For additional information regarding the Corporation's accounting policies related to credit losses, refer to Note 1, "Summary of Significant Accounting Policies" in the Corporation's 2021 Form 10-K and Note 4, "Loans" in these condensed consolidated financial statements.

The tables below provides an allocation of the allowance for credit losses on loans receivable by loan portfolio segment at June 30, 2022 and December 31, 2021; however, allocation of a portion of the allowance for credit losses to one segment does not preclude its availability to absorb losses in other segments.


	June 30, 2022
	Amount of Allowance Allocated		Percent of Loans in Each Category to Total Loans Receivable		Total Loans Receivable		Ratio of Allowance Allocated to Loans Receivable in Each Category
Farmland	$	191	0.8	%	$	31,649	0.60	%
Owner-occupied, nonfarm nonresidential properties	3,714		11.9	%	463,922		0.80	%
Agricultural production and other loans to farmers	7		0.0	%	1,097		0.64	%
Commercial and Industrial 1	9,555		19.4	%	759,417		1.26	%
Obligations (other than securities and leases) of states and political subdivisions	1,665		3.7	%	143,488		1.16	%
Other loans	167		0.4	%	14,524		1.15	%
Other construction loans and all land development and other land loans	2,328		8.7	%	341,399		0.68	%
Multifamily (5 or more) residential properties	2,277		5.5	%	212,561		1.07	%
Non-owner occupied, nonfarm nonresidential properties	6,748		18.8	%	734,580		0.92	%
1-4 Family Construction	236		1.0	%	40,990		0.58	%
Home equity lines of credit	1,353		3.0	%	115,836		1.17	%
Residential Mortgages secured by first liens	7,664		22.4	%	875,974		0.87	%
Residential Mortgages secured by junior liens	628		1.6	%	62,212		1.01	%
Other revolving credit plans	598		0.7	%	28,768		2.08	%
Automobile	242		0.5	%	20,166		1.20	%
Other consumer	2,704		1.3	%	51,765		5.22	%
Credit cards	110		0.3	%	11,049		1.00	%
Overdrafts	356		0.0	%	356		100.00	%
Total	$	40,543	100.0	%	$	3,909,753	1.04	%
Excluding PPP loans, net of deferred processing fees	$	40,543			$	3,907,466	1.04	%

1 PPP loans, net of deferred PPP processing fees, disbursed in 2021 are included in the Commercial and Industrial classification.

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	December 31, 2021
	Amount of Allowance Allocated		Percent of Loans in Each Category to Total Loans Receivable		Total Loans Receivable		Ratio of Allowance Allocated to Loans Receivable in Each Category
Farmland	$	151	0.7	%	$	23,768	0.64	%
Owner-occupied, nonfarm nonresidential properties	3,339		12.0	%	434,672		0.77	%
Agricultural production and other loans to farmers	9		0.0	%	1,379		0.65	%
Commercial and Industrial 1	8,837		19.5	%	708,989		1.25	%
Obligations (other than securities and leases) of states and political subdivisions	1,649		3.9	%	140,887		1.17	%
Other loans	149		0.4	%	13,979		1.07	%
Other construction loans and all land development and other land loans	2,198		8.2	%	298,869		0.74	%
Multifamily (5 or more) residential properties	2,289		5.9	%	216,143		1.06	%
Non-owner occupied, nonfarm nonresidential properties	6,481		18.2	%	663,062		0.98	%
1-4 Family Construction	158		1.0	%	37,822		0.42	%
Home equity lines of credit	1,169		2.9	%	104,517		1.12	%
Residential Mortgages secured by first liens	6,943		22.7	%	826,729		0.84	%
Residential Mortgages secured by junior liens	546		1.6	%	56,689		0.96	%
Other revolving credit plans	528		0.7	%	26,536		1.99	%
Automobile	263		0.6	%	20,862		1.26	%
Other consumer	2,546		1.4	%	49,676		5.13	%
Credit cards	92		0.3	%	9,935		0.93	%
Overdrafts	241		0.0	%	278		86.69	%
Total	$	37,588	100.0	%	$	3,634,792	1.03	%
Excluding PPP loans, net of deferred processing fees	$	37,588			$	3,589,589	1.05	%

1 PPP loans, net of deferred PPP processing fees, disbursed in 2021 and 2020 are included in the Commercial and Industrial classification.

The allowance for credit losses measured as a percentage of total loans receivable was 1.04% as of June 30, 2022, compared to 1.03% as of December 31, 2021.

The Corporation's allowance for credit losses is influenced by loan volumes, risk rating migration, delinquency status and other internal and external conditions influencing loss expectations, such as reasonable and supportable forecasts of economic conditions and other external factors.

For the three and six months ended June 30, 2022, the allowance for credit losses increased primarily due to the growth in the Corporation's loan portfolio, including growth in the Corporation’s newly established regions. This increase was partially offset by improvements in the Corporation's historical loss rates, as well as the impact of net charge-offs. There is still a significant amount of uncertainty related to the domestic and global economy, continued supply chain challenges, persistent inflation and the pandemic. Management will continue to proactively evaluate its estimate of expected credit losses as new information becomes available.

Note 4, "Loans Receivable and Allowance for Credit Losses," to the condensed consolidated financial statements provides further disclosure of loan balances by portfolio segment as of June 30, 2022 and December 31, 2021, as well as the nature and scope of loans modified in a TDR during 2022 and 2021 and the related effect on provision for credit expense and allowance for credit losses.

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Additional information related to provision for credit loss expense and net charge-offs and recoveries at June 30, 2022 and 2021 is presented in the tables below.


	For the Three Months Ended June 30, 2022
	Provision (Benefit) for Credit Losses on Loans Receivable (1)		Net (Charge-Offs) Recoveries		Average Loans Receivable		Ratio of Annualized Net (Charge-Offs) Recoveries to Average Loans Receivable
Farmland	$	5	$	0	$	32,530	0.00	%
Owner-occupied, nonfarm nonresidential properties	117		2		470,087		0.00	%
Agricultural production and other loans to farmers	(3)		0		1,263		0.00	%
Commercial and Industrial	466		(1)		758,425		0.00	%
Obligations (other than securities and leases) of states and political subdivisions	(163)		0		147,551		0.00	%
Other loans	24		0		14,222		0.00	%
Other construction loans and all land development and other land loans	278		0		326,727		0.00	%
Multifamily (5 or more) residential properties	41		0		224,514		0.00	%
Non-owner occupied, nonfarm nonresidential properties	337		0		690,368		0.00	%
1-4 Family Construction	26		0		41,187		0.00	%
Home equity lines of credit	170		2		112,448		0.01	%
Residential Mortgages secured by first liens	759		0		847,161		0.00	%
Residential Mortgages secured by junior liens	76		0		59,594		0.00	%
Other revolving credit plans	42		9		27,436		0.13	%
Automobile	(6)		(6)		20,237		(0.12)	%
Other consumer	485		(350)		50,687		(2.77)	%
Credit cards	48		(41)		11,868		(1.39)	%
Overdrafts	203		(94)		257		(146.71)	%
Total	$	2,905	$	(479)	$	3,836,562	(0.05)	%

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	For the Six Months Ended June 30, 2022
	Provision (Benefit) for Credit Losses on Loans Receivable (1)		Net (Charge-Offs) Recoveries		Average Loans Receivable		Ratio of Annualized Net (Charge-Offs) Recoveries to Average Loans Receivable
Farmland	$	40	$	0	$	31,315	0.00	%
Owner-occupied, nonfarm nonresidential properties	387		(12)		459,095		(0.01)	%
Agricultural production and other loans to farmers	(2)		0		1,321		0.00	%
Commercial and Industrial	712		6		738,541		0.00	%
Obligations (other than securities and leases) of states and political subdivisions	16		0		146,500		0.00	%
Other loans	18		0		14,018		0.00	%
Other construction loans and all land development and other land loans	130		0		314,260		0.00	%
Multifamily (5 or more) residential properties	(12)		0		219,810		0.00	%
Non-owner occupied, nonfarm nonresidential properties	267		0		674,195		0.00	%
1-4 Family Construction	78		0		40,134		0.00	%
Home equity lines of credit	174		10		109,553		0.02	%
Residential Mortgages secured by first liens	756		(35)		837,485		(0.01)	%
Residential Mortgages secured by junior liens	82		0		58,080		0.00	%
Other revolving credit plans	81		(11)		27,002		(0.08)	%
Automobile	(8)		(13)		20,298		(0.13)	%
Other consumer	887		(729)		49,804		(2.95)	%
Credit cards	69		(51)		11,485		(0.90)	%
Overdrafts	287		(172)		253		(137.10)	%
Total	$	3,962	$	(1,007)	$	3,753,149	(0.05)	%


	For the Three Months Ended June 30, 2021
	Provision (Benefit) for Credit Losses on Loans Receivable (1)		Net (Charge-Offs) Recoveries		Average Loans Receivable		Ratio of Annualized Net (Charge-Offs) Recoveries to Average Loans Receivable
Farmland	$	(100)	$	0	$	21,131	0.00	%
Owner-occupied, nonfarm nonresidential properties	(58)		3		425,394		0.00	%
Agricultural production and other loans to farmers	(16)		0		2,899		0.00	%
Commercial and Industrial	832		1		698,819		0.00	%
Obligations (other than securities and leases) of states and political subdivisions	860		(250)		134,792		(0.74)	%
Other loans	44		0		12,360		0.00	%
Other construction loans and all land development and other land loans	358		0		230,744		0.00	%
Multifamily (5 or more) residential properties	(440)		0		225,194		0.00	%
Non-owner occupied, nonfarm nonresidential properties	(1,164)		0		613,750		0.00	%
1-4 Family Construction	43		0		29,316		0.00	%
Home equity lines of credit	184		2		104,492		0.01	%
Residential Mortgages secured by first liens	889		(41)		784,354		(0.02)	%
Residential Mortgages secured by junior liens	184		0		54,386		0.00	%
Other revolving credit plans	(54)		(14)		25,569		(0.22)	%
Automobile	56		3		23,213		0.05	%
Other consumer	227		(199)		40,829		(1.95)	%
Credit cards	39		(36)		8,717		(1.66)	%
Overdrafts	83		(83)		192		(173.39)	%
Total	$	1,967	$	(614)	$	3,436,151	(0.07)	%

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	For the Six Months Ended June 30, 2021
	Provision (Benefit) for Credit Losses on Loans Receivable (1)		Net (Charge-Offs) Recoveries		Average Loans Receivable		Ratio of Annualized Net (Charge-Offs) Recoveries to Average Loans Receivable
Farmland	$	(97)	$	0	$	22,774	0.00	%
Owner-occupied, nonfarm nonresidential properties	(294)		(526)		424,477		(0.25)	%
Agricultural production and other loans to farmers	(12)		0		2,932		0.00	%
Commercial and Industrial	1,129		(50)		683,078		(0.01)	%
Obligations (other than securities and leases) of states and political subdivisions	1,577		(250)		136,182		(0.37)	%
Other loans	49		0		12,221		0.00	%
Other construction loans and all land development and other land loans	408		0		217,684		0.00	%
Multifamily (5 or more) residential properties	(410)		0		225,519		0.00	%
Non-owner occupied, nonfarm nonresidential properties	1,504		0		619,502		0.00	%
1-4 Family Construction	28		0		27,422		0.00	%
Home equity lines of credit	42		2		106,478		0.00	%
Residential Mortgages secured by first liens	(103)		(38)		780,724		(0.01)	%
Residential Mortgages secured by junior liens	167		0		53,771		0.00	%
Other revolving credit plans	(30)		(18)		25,359		(0.14)	%
Automobile	111		(2)		24,076		(0.02)	%
Other consumer	(94)		(466)		40,401		(2.33)	%
Credit cards	63		(61)		8,497		(1.45)	%
Overdrafts	51		(112)		202		(111.81)	%
Total	$	4,089	$	(1,521)	$	3,411,299	(0.09)	%

Provision for credit losses was $2.9 million and $4.5 million for the three and six months ended June 30, 2022, respectively, compared to $2.0 million and $4.1 million for June 30, 2021, respectively. The increase in provision for the three months ended June 30, 2022 was primarily due to the growth in commercial loans. Included in the provision for credit losses for the six months ended June 30, 2022 was $586 thousand related to the allowance for unfunded commitments compared to zero for the six months ended June 30, 2021.

DEPOSITS

The Corporation’s sources of funds are deposits, borrowings, amortization and repayment of loan principal, interest earned on or maturation of investment securities and funds provided from operations. The Corporation considers deposits to be its primary source of funding in support of growth in assets.


	June 30, 2022		December 31, 2021		Percentage change 2022 vs. 2021
Demand, noninterest-bearing	$	851,172	$	792,086	7.5%
Demand, interest-bearing	1,147,376		1,079,336		6.3%
Savings deposits	2,398,995		2,457,745		(2.4)%
Time deposits	304,277		386,452		(21.3)%
Total deposits	$	4,701,820	$	4,715,619	(0.3)%

At June 30, 2022, total deposits were $4.7 billion, reflecting a decrease of $13.8 million, or 0.3%, from December 31, 2021. During the same time frame, while noninterest-bearing deposits increased approximately $59.1 million, or 7.5%, total interest-bearing deposits decreased approximately $72.9 million, or 1.9%, from December 31, 2021.

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The following table sets forth the average balances of and the average rates paid on deposits for the periods indicated.


	Three Months Ended June 30,
	2022				2021
	Average Amount		Annual Rate		Average Amount		Annual Rate
Demand, noninterest-bearing	$	839,009			$	712,725
Demand, interest-bearing	1,105,651		0.17	%	975,354		0.20	%
Savings deposits	2,426,518		0.17	%	2,302,496		0.26	%
Time deposits	324,370		1.19	%	446,896		1.90	%
Total	$	4,695,548			$	4,437,471


	Six Months Ended June 30,
	2022				2021
	Average Amount		Annual Rate		Average Amount		Annual Rate
Demand, noninterest-bearing	$	822,007			$	682,649
Demand, interest-bearing	1,076,240		0.17	%	941,016		0.20	%
Savings deposits	2,447,111		0.18	%	2,251,818		0.26	%
Time deposits	341,826		1.25	%	459,863		1.97	%
Total	$	4,687,184			$	4,335,346

The following table presents additional information about our June 30, 2022 and December 31, 2021 deposits:


	June 30, 2022		December 31, 2021
Time deposits not covered by deposit insurance	$	53,860	$	68,562
Total deposits not covered by deposit insurance	1,729,213		1,711,676

Scheduled maturities of time deposits not covered by deposit insurance at June 30, 2022 were as follows:


	June 30, 2022
3 months or less	$	4,669
Over 3 through 6 months	28,632
Over 6 through 12 months	6,037
Over 12 months	14,522
Total	$	53,860

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

Liquidity measures an organization’s ability to meet its cash obligations as they come due. The condensed consolidated statements of cash flows included in the accompanying financial statements provide analysis of the Corporation’s cash and cash equivalents and the sources and uses of cash. Additionally, the portion of the loan portfolio that matures within one year and securities with maturities within one year in the investment portfolio are considered part of the Corporation’s primary liquid assets. Liquidity is monitored by both management and the ALCO, which establishes and monitors ranges of acceptable liquidity. Management believes that the Corporation’s current liquidity position is acceptable and commensurate with the Corporation’s current and expected liquidity requirements.

At June 30, 2022, the Corporation’s cash and cash equivalents position was approximately $284.2 million, including liquidity of $217.8 million held at the Federal Reserve, reflecting, in management's view, a strong liquidity level. In addition to its cash position, the Corporation’s borrowing capacity with the FHLB at June 30, 2022 was approximately $1.0 billion.

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Shareholders’ Equity, Capital Ratios and Metrics

As of June 30, 2022, the Corporation’s total shareholders’ equity was $423.6 million, representing a decrease of $19.3 million, or 4.3%, from December 31, 2021, mostly due to a decrease in accumulated other comprehensive income, resulting primarily from the temporary unrealized reduction in the value of the available-for-sale investment portfolio. The decrease in accumulated other comprehensive income exceeded the amount added to retained during the six months ended June 30, 2022.

The Corporation has complied with the standards of capital adequacy mandated by government regulations. Bank regulators have established "risk-based" capital requirements designed to measure capital adequacy. Risk-based capital ratios reflect the relative risks of various assets banks hold in their portfolios. A weight category (0% for the lowest risk assets and increasing for each tier of higher risk assets) is assigned to each asset on the balance sheet.

As of June 30, 2022 all of the Corporation's capital ratios exceeded regulatory “well-capitalized” levels. The Corporation’s capital ratios and book value per common share at June 30, 2022 and December 31, 2021 were as follows:


	June 30, 2022			December 31, 2021
Total risk-based capital ratio	14.23		%	14.92		%
Tier 1 risk based ratio	11.25		%	11.79		%
Common equity tier 1 ratio	9.30		%	9.65		%
Tier 1 leverage ratio	8.53		%	8.22		%
Tangible common equity/tangible assets (1)	6.12		%	6.45		%

Book value per common share	$	21.70		$	22.85
Tangible book value per common share (1)	$	19.08		$	20.22

(1) Tangible common equity, tangible assets and tangible book value per common share are non-GAAP financial measures calculated using GAAP amounts. Tangible common equity is calculated by excluding the balance of goodwill and other intangible assets and preferred equity from the calculation of shareholders’ equity. Tangible assets is calculated by excluding the balance of goodwill and other intangible assets from the calculation of total assets. Tangible book value per common share is calculated by dividing tangible common equity by the number of shares outstanding. The Corporation believes that these non-GAAP financial measures provide information to investors that is useful in understanding its financial condition. Because not all companies use the same calculation of tangible common equity and tangible assets, this presentation may not be comparable to other similarly titled measures calculated by other companies. A reconciliation of these non-GAAP financial measures is provided.

AVERAGE BALANCES, INTEREST RATES AND YIELDS

The loans receivable categories used to monitor and analyze interest income and yields are different than the portfolio segments used to determine the allowance for credit losses for loans receivable. The allowance for credit losses was calculated by pooling loans of similar credit risk characteristics and credit monitoring procedures. See Note 4, "Loans Receivable and Allowance for Credit Losses," for more information about pooling of loans receivable for the allowance for credit losses.

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The following table presents average balances of certain measures of our financial condition and net interest margin for the three months ended June 30, 2022 and 2021:


	Average Balances, Income and Interest Rates on a Taxable Equivalent Basis
	For the Three Months Ended,
	June 30, 2022						June 30, 2021
	Average Balance		Annual Rate		Interest Inc./Exp.		Average Balance		Annual Rate		Interest Inc./Exp.
ASSETS:
Securities:
Taxable (1) (4)	$	793,598	1.75	%	$	3,623	$	591,968	1.73	%	$	2,514
Tax-exempt (1) (2) (4)	37,719		2.87	%	284		42,876		3.29	%	337
Equity securities (1) (2)	7,852		1.89	%	37		7,550		2.71	%	51
Total securities (4)	839,169		1.80	%	3,944		642,394		1.84	%	2,902
Loans receivable:
Commercial (2) (3)	1,424,078		4.66	%	16,558		1,295,395		4.72	%	15,247
Mortgage (2) (3) (5)	2,301,999		4.55	%	26,096		2,042,236		4.55	%	23,145
Consumer (3)	110,485		10.23	%	2,819		98,520		9.68	%	2,377
Total loans receivable (3)	3,836,562		4.75	%	45,473		3,436,151		4.76	%	40,769
Other earning assets	291,866		0.87	%	630		656,115		0.10	%	165
Total earning assets	4,967,597		4.01	%	$	50,047	4,734,660		3.72	%	$	43,836

Noninterest-bearing assets:
Cash and due from banks	49,307						45,659
Premises and equipment	88,472						78,130
Other assets	225,358						195,865
Allowance for credit losses	(38,747)						(36,580)
Total non interest-bearing assets	324,390						283,074
TOTAL ASSETS	$	5,291,987					$	5,017,734
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Demand—interest-bearing	$	1,105,651	0.17	%	$	480	$	975,354	0.20	%	$	483
Savings	2,426,518		0.17	%	1,048		2,302,496		0.26	%	1,473
Time	324,370		1.19	%	959		446,896		1.90	%	2,116
Total interest-bearing deposits	3,856,539		0.26	%	2,487		3,724,746		0.44	%	4,072

Finance lease liabilities	437		4.59	%	5		517		4.65	%	6
Subordinated notes and debentures	104,394		3.64	%	948		98,953		4.64	%	1,145
Total interest-bearing liabilities	3,961,370		0.35	%	$	3,440	3,824,216		0.55	%	$	5,223
Demand—noninterest-bearing	839,009						712,725
Other liabilities	66,158						56,259
Total liabilities	4,866,537						4,593,200
Shareholders’ equity	425,450						424,534
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	5,291,987					$	5,017,734
Interest income/Earning assets			4.01	%	$	50,047			3.72	%	$	43,836
Interest expense/Interest-bearing liabilities			0.35	%	3,440				0.55	%	5,223
Net interest spread			3.66	%	$	46,607			3.17	%	$	38,613
Interest income/Earning assets			4.01	%	50,047				3.72	%	43,836
Interest expense/Earning assets			0.28	%	3,440				0.44	%	5,223
Net interest margin (fully tax-equivalent)			3.73	%	$	46,607			3.28	%	$	38,613

(1) Includes unamortized discounts and premiums.

(2) Average yields are stated on a fully taxable equivalent basis (calculated using statutory rates of 21%) resulting from tax-free municipal securities in the investment portfolio and tax-free municipal loans in the commercial loan portfolio. The taxable equivalent adjustment to net interest income for the three months ended June 30, 2022 and 2021 was $306 thousand and $308 thousand, respectively.

(3) Average loans receivable outstanding includes the average balance outstanding of all nonaccrual loans. Loans receivable consist of the average of total loans receivable less average unearned income. In addition, loans receivable interest income consists of loans receivable fees, including PPP deferred processing fees.

(4) Average balance is computed using the fair value of AFS securities and amortized cost of HTM securities. Average yield has been computed using amortized cost average balance for AFS and HTM securities. The adjustment to the average balance for securities in the calculation of average yield for the three months ended June 30, 2022 and 2021 was $(37.5) million and $9.2 million, respectively.

(5) Includes loans held for sale

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The following table presents average balances of certain measures of our financial condition and net interest margin for the six months ended June 30, 2022 and 2021:


	Average Balances, Income and Interest Rates on a Taxable Equivalent Basis
	For the Six Months Ended,
	June 30, 2022						June 30, 2021
	Average Balance		Annual Rate		Interest Inc./Exp.		Average Balance		Annual Rate		Interest Inc./Exp.
ASSETS:
Securities:
Taxable (1) (4)	$	776,683	1.77	%	$	7,024	$	576,999	1.79	%	$	5,027
Tax-exempt (1) (2) (4)	37,653		2.94	%	559		44,015		3.70	%	773
Equity securities (1) (2)	7,894		2.02	%	79		7,475		5.72	%	212
Total securities (4)	822,230		1.83	%	7,662		628,489		1.97	%	6,012
Loans receivable:
Commercial (2) (3)	1,390,790		4.68	%	32,254		1,281,664		4.93	%	31,323
Mortgage (2) (3) (5)	2,253,517		4.51	%	50,388		2,031,100		4.57	%	46,042
Consumer (3)	108,842		10.19	%	5,498		98,535		9.75	%	4,764
Total loans receivable (3)	3,753,149		4.74	%	88,140		3,411,299		4.86	%	82,129
Other earning assets	399,585		0.43	%	843		582,511		0.11	%	313
Total earning assets	4,974,964		3.90	%	$	96,645	4,622,299		3.87	%	$	88,454

Noninterest-bearing assets:
Cash and due from banks	49,612						46,091
Premises and equipment	86,112						78,427
Other assets	219,560						189,216
Allowance for credit losses	(38,397)						(35,905)
Total noninterest-bearing assets	316,887						277,829
TOTAL ASSETS	$	5,291,851					$	4,900,128
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Demand—interest-bearing	$	1,076,240	0.17	%	$	918	$	941,016	0.20	%	$	921
Savings	2,447,111		0.18	%	2,163		2,251,818		0.26	%	2,942
Time	341,826		1.25	%	2,112		459,863		1.97	%	4,489
Total interest-bearing deposits	3,865,177		0.27	%	5,193		3,652,697		0.46	%	8,352

Finance lease liabilities	448		4.50	%	10		527		4.59	%	12
Subordinated notes and debentures	104,356		3.62	%	1,874		84,787		4.85	%	2,033
Total interest-bearing liabilities	3,969,981		0.36	%	$	7,077	3,738,011		0.56	%	$	10,397
Demand—noninterest-bearing	822,007						682,649
Other liabilities	66,110						56,996
Total liabilities	4,858,098						4,477,656
Shareholders’ equity	433,753						422,472
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	5,291,851					$	4,900,128
Interest income/Earning assets			3.90	%	$	96,645			3.87	%	$	88,454
Interest expense/Interest-bearing liabilities			0.36	%	7,077				0.56	%	10,397
Net interest spread			3.54	%	$	89,568			3.31	%	$	78,057
Interest income/Earning assets			3.90	%	96,645				3.87	%	88,454
Interest expense/Earning assets			0.29	%	7,077				0.45	%	10,397
Net interest margin (fully tax-equivalent)			3.61	%	$	89,568			3.42	%	$	78,057

(1) Includes unamortized discounts and premiums.

(2) Average yields are stated on a fully taxable equivalent basis (calculated using statutory rates of 21%) resulting from tax-free municipal securities in the investment portfolio and tax-free municipal loans in the commercial loan portfolio. The taxable equivalent adjustment to net interest income for the six months ended June 30, 2022 and 2021 was $650 thousand and $631 thousand, respectively.

(4) Average balance is computed using the fair value of AFS securities and amortized cost of HTM securities. Average yield has been computed using amortized cost average balance for AFS and HTM securities. The adjustment to the average balance for securities in the calculation of average yield for the six months ended June 30, 2022 and 2021 was $(24.1) million and $13.2 million, respectively.

(5) Includes loans held for sale

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VOLUME ANALYSIS OF CHANGES IN NET INTEREST INCOME

The following table presents the change in net interest income for the three months ended June 30, 2022 and 2021:


Net Interest Income Rate-Volume Variance	For Three Months Ended June 30, 2022 over (under) 2021 Due to Change In (1)
	Volume		Rate		Net
Assets
Securities:
Taxable	$	1,079	$	30	$	1,109
Tax-exempt (2)	(8)		(45)		(53)
Equity securities (2)	1		(15)		(14)
Total securities	1,072		(30)		1,042
Loans receivable:
Commercial (2)	1,505		(194)		1,311
Mortgage (2) (3)	2,951		0		2,951
Consumer	307		135		442
Total loans receivable	4,763		(59)		4,704
Other earning assets	(795)		1,260		465
Total Earning Assets	$	5,040	$	1,171	$	6,211

Liabilities and Shareholders’ Equity
Interest-Bearing Deposits
Demand – interest-bearing	$	70	$	(73)	$	(3)
Savings	92		(517)		(425)
Time	(366)		(791)		(1,157)
Total interest-bearing deposits	(204)		(1,381)		(1,585)

Finance lease liabilities	(1)		0		(1)
Subordinated debentures	50		(247)		(197)
Total Interest-Bearing Liabilities	$	(155)	$	(1,628)	$	(1,783)

Change in Net Interest Income	$	5,195	$	2,799	$	7,994

(1) The change in interest due to both volume and rate have been allocated entirely to volume changes.

(2) Changes in interest income on tax-exempt securities and loans receivable are presented on a fully taxable-equivalent basis, using the Corporation’s marginal federal income tax rate of 21% for the three months ended June 30, 2022.

(3) Includes loans held for sale

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The following table presents the change in net interest income for the six months ended June 30, 2022 and 2021:


Net Interest Income Rate-Volume Variance	For Six Months Ended June 30, 2022 over (under) 2021 Due to Change In (1)
	Volume		Rate		Net
Assets
Securities:
Taxable	$	2,054	$	(57)	$	1,997
Tax-exempt (2)	(48)		(166)		(214)
Equity securities (2)	4		(137)		(133)
Total securities	2,010		(360)		1,650
Loans receivable:
Commercial (2)	2,520		(1,589)		931
Mortgage (2) (3)	4,950		(604)		4,346
Consumer	519		215		734
Total loans receivable	7,989		(1,978)		6,011
Other earning assets	(394)		924		530
Total Earning Assets	$	9,605	$	(1,414)	$	8,191

Liabilities and Shareholders’ Equity
Interest-Bearing Deposits
Demand – interest-bearing	$	137	$	(140)	$	(3)
Savings	114		(893)		(779)
Time	(735)		(1,642)		(2,377)
Total interest-bearing deposits	(484)		(2,675)		(3,159)

Finance lease liabilities	(2)		0		(2)
Subordinated debentures	358		(517)		(159)
Total Interest-Bearing Liabilities	$	(128)	$	(3,192)	$	(3,320)

Change in Net Interest Income	$	9,733	$	1,778	$	11,511

(1) The change in interest due to both volume and rate have been allocated entirely to volume changes.

(3) Includes loans held for sale

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RESULTS OF OPERATIONS

Three Months Ended June 30, 2022 and 2021

OVERVIEW

Net income available to common shareholders was $14.4 million, or $0.85 per diluted share, for the three months ended June 30, 2022, compared to $12.9 million, or $0.76 per diluted share, for the three months ended June 30, 2021, reflecting increases of $1.4 million, or 11.2%, and $0.09 per diluted share, or 11.8%, respecitvely. Earnings for the quarter ended June 30, 2022 benefited primarily from growth in commercial loans and investment securities, stable credit quality, and an asset sensitive balance sheet supporting increased net interest income in the current rising rate environment.

Annualized return on average equity was 14.55% for the three months ended June 30, 2022, compared to 13.22% for the three months ended June 30, 2021. Annualized return on average tangible common equity, a non-GAAP measure, was 17.81% for the three months ended June 30, 2022, compared to 16.06% for the comparable period in 2021.

The efficiency ratio, a non-GAAP measure, was 59.47% for the three months ended June 30, 2022, compared to 57.91% for the three months ended June 30, 2021. The increase for the 2022 period was primarily as a result of expected increasing costs associated with the Corporation’s expanding franchise investments into the Cleveland and Southwest Virginia markets, coupled with its continued strategic investments in technologies focused on customer sales management, while expanding and improving customer connectivity capabilities.

NET INTEREST INCOME

Net interest income of $46.3 million for the three months ended June 30, 2022 increased $8.0 million, or 20.9%, from the three months ended June 30, 2021, primarily as a result of loan growth and the net benefit of higher interest rates. Included in net interest income were PPP-related fees, which totaled approximately $559 thousand for the three months ended June 30, 2022, compared to $1.6 million for the three months ended June 30, 2021.

Net interest margin on a fully tax-equivalent basis, a non-GAAP measure, was 3.73% and 3.28% for the three months ended June 30, 2022 and 2021, respectively.

The yield on earning assets of 4.01% for the three months ended June 30, 2022 increased 29 basis points from 3.72% for the three months ended June 30, 2021, primarily as a result of the Corporation redeploying excess cash at the Federal Reserve to investment securities and loan growth. Net interest income also reflected the net benefit of higher interest rates, partially offset by lower PPP-related fees in 2022 compared to 2021. The cost of interest-bearing liabilities decreased 20 basis points from 0.55% for the three months ended June 30, 2021 to 0.35% for the three months ended June 30, 2022, primarily as a result of the Corporation’s targeted deposit rate reductions.

PROVISION FOR CREDIT LOSSES

Provision for credit losses was $2.9 million for the three months ended June 30, 2022, compared to $2.0 million for the three months ended June 30, 2021. The increase in provision for the three months ended June 30, 2022 was primarily due to the growth in commercial loans. For the three months ended June 30, 2022, net loan charge-offs were $479 thousand, or 0.05% (annualized) of average total loans receivable including loans held for sale, compared to $614 thousand, or 0.07% (annualized), during the three months ended June 30, 2021. As disclosed in "Allowance for Credit Losses" discussion above, management estimates the allowance for credit losses balance using relevant available information, from internal and external sources, relating to past events, current conditions, reasonable and supportable forecasts, and other significant qualitative and quantitative factors.

Management believes the charges to the provision for credit losses in for the three months ended June 30, 2022 were appropriate and the allowance for credit losses was adequate to absorb current expected credit losses in the loan portfolio at June 30, 2022.

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NON-INTEREST INCOME

Total non-interest income was $8.1 million for the three months ended June 30, 2022, representing an increase of $289 thousand, or 3.7%, from the same period in 2021. The increase was primarily comprised of a $508 thousand increase in income from charges on deposits and an $886 thousand increase in bank owned life insurance mostly due to an $830 thousand gain resulting from death benefit proceeds. These increases were partially offset by a $991 thousand increase in unrealized losses on equity securities and a $244 thousand decrease in mortgage banking activity.

NON-INTEREST EXPENSE

For the three months ended June 30, 2022, total non-interest expense was $32.6 million, reflecting an increase of $5.6 million, or 20.9%, from the three months ended June 30, 2021. The second quarter of 2022 included the expenses related to expanding the Corporation's remote workforce and additional personnel in the Corporation's growth regions of Cleveland and Southwest Virginia, as well as increased investments in technology aimed at enhancing both customer experience and the Corporation’s sales management. Also, included in the second quarter of 2022 is approximately $1.3 million in accelerated retirement benefit expenses related to a pending executive retirement, coupled with additional personnel costs primarily from increased incentive compensation accruals related to a higher financial performance level.

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RESULTS OF OPERATIONS

Six Months Ended June 30, 2022 and 2021

OVERVIEW

Net income available to common was $28.5 million, or $1.69 per diluted share, for the six months ended June 30, 2022, compared to $26.0 million, or $1.54 per diluted share, for the six months ended June 30, 2021, reflecting increases of $2.5 million, or 9.7%, and $0.15 per diluted share, or 9.7%, respectively.

Annualized Return on average equity was 14.26% for the six months ended June 30, 2022, compared to 13.45% for the six months ended June 30, 2021. Annualized return on average tangible common equity, a non-GAAP measure, was 17.34% for the six months ended June 30, 2022, compared to 16.38% for the comparable period in 2021.

The efficiency ratio, a non-GAAP measure, was 59.99% for the six months ended June 30, 2022, compared to 58.04% for the six months ended June 30, 2021. The increase for the 2022 period was primarily a result of the same drivers as previously discussed in the "Results from Operations for the three months ended June 30, 2022 and 2021."

NET INTEREST INCOME

Net interest income of $88.9 million for the six months ended June 30, 2022 increased $11.5 million, or 14.8%, from the six months ended June 30, 2021, primarily as a result of loan growth and the benefits of higher interest rates in 2022 from variable-rate loans and growth in the investment portfolio. Included in net interest income were PPP-related fees, which totaled approximately $1.8 million for the six months ended June 30, 2022, compared to $4.4 million for the six months ended June 30, 2021.

Net interest margin on a fully tax-equivalent basis, a non-GAAP measure, was 3.61% and 3.42% for the six months ended June 30, 2022 and 2021, respectively.

The yield on earning assets of 3.90% for the six months ended June 30, 2022 increased 3 basis points from 3.87% for the six months ended June 30, 2021, primarily as a result of the Corporation redeploying excess cash at the Federal Reserve to investment securities and loan growth. Net interest income also reflected the net benefit of higher interest rates, partially offset by lower PPP-related fees in 2022 compared to 2021. The cost of interest-bearing liabilities decreased 20 basis points from 0.56% for the six months ended June 30, 2021 to 0.36% for the six months ended June 30, 2022, primarily as a result of the Corporation’s targeted deposit rate reductions.

PROVISION FOR CREDIT LOSSES

Provision for credit losses was $4.5 million for the six months ended June 30, 2022, compared to $4.1 million for the six months ended June 30, 2021. The increase in provision for the six months ended June 30, 2022 was primarily due to the growth in commercial loans. Included in the provision for credit losses for the six months ended June 30, 2022 was $586 thousand related to the allowance for unfunded commitments compared to no accrual towards the allowance for unfunded commitments for the six months ended June 30, 2021. For the six months ended June 30, 2022, net loan charge-offs were $1.0 million, or 0.05% (annualized) of average total loans receivable including loans held for sale, compared to $1.5 million, or 0.09% (annualized), during the six months ended June 30, 2021. As disclosed in "Allowance for Credit Losses" discussion above, management estimates the allowance for credit losses balance using relevant available information, from internal and external sources, relating to past events, current conditions, reasonable and supportable forecasts, and other significant qualitative and quantitative factors.

Management believes the charges to the provision for credit losses in for the six months ended June 30, 2022 were appropriate and the allowance for credit losses was adequate to absorb current expected credit losses in the loan portfolio at June 30, 2022.

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NON-INTEREST INCOME

Total non-interest income was $17.8 million for the six months ended June 30, 2022, representing an increase of $1.7 million, or 10.6%, from the same period in 2021. Included in non-interest income for the six months ended June 30, 2022 was $651 thousand in net realized gains on available-for-sale securities. Excluding the impact of the realized gains on available-for-sale securities, a non-GAAP measure, for the six months ended June 30, 2022, total non-interest income increased $1.1 million or 6.5%, from the same period in 2021. During the six months ended June 30, 2022, Wealth and Asset Management fees increased $299 thousand, or 9.1%, compared to the six months ended June 30, 2021. Other notable increases during the six months ended June 30, 2022 included increased income from charges on deposits and pass through income from small business investment companies ("SBIC"). These were partially offset by unrealized losses on equity securities and decreased mortgage banking activity.

NON-INTEREST EXPENSE

For the six months ended June 30, 2022, total non-interest expense was $64.5 million, reflecting an increase of $9.7 million, or 17.8%, from the six months ended June 30, 2021, primarily as a result of the same drivers as previously discussed in the "Results from Operations for the three months ended June 30, 2022 and 2021."

INCOME TAX EXPENSE

Income tax expense was $7.0 million, representing an 18.5% effective tax rate, and $6.5 million, representing an 18.7% effective tax rate, for the six months ended June 30, 2022 and 2021, respectively.

OFF-BALANCE SHEET ARRANGEMENTS

In the normal course of business, the Corporation enters into various transactions, which, in accordance with GAAP, are not included in its condensed consolidated balance sheets. The Corporation enters into these transactions to meet the financing needs of its customers. These transactions include commitments to extend credit and standby and commercial letters of credit, which involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized in the condensed consolidated balance sheets. For further information, see Note 8, "Off-Balance Sheet Commitments and Contingencies," in the in the condensed consolidated financial statements.

CRITICAL ACCOUNTING POLICIES

The Corporation’s accounting and reporting policies are in accordance with GAAP and conform to general practices within the financial services industry. Accounting and reporting practices for the allowance for credit losses and the fair value of assets acquired and liabilities assumed in connection with business combinations, including the associated goodwill and intangibles that was recorded, required the use of material estimates. Application of assumptions different than those used by management could result in material changes in the Corporation’s financial position or results of operations. Note 1 (Summary of Significant Accounting Policies) and Note 4 (Loans) of the 2021 Form 10-K provide additional detail with regard to the Corporation’s accounting for the allowance for credit losses and loans receivable. There have been no other significant changes in the application of accounting policies since December 31, 2021.

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NON-GAAP FINANCIAL MEASURES

The following tables reconcile the non-GAAP financial measures to their most directly comparable measures under GAAP.



	(unaudited)
	June 30,			December 31,
	2022			2021
Calculation of tangible book value per common share and tangible common equity/tangible assets:
Shareholders' equity	$	423,588		$	442,847
Less: preferred equity	57,785			57,785
Less: goodwill	43,749			43,749
Less: core deposit intangible	410			460
Tangible common equity	$	321,644		$	340,853

Total assets	$	5,299,315		$	5,328,939
Less: goodwill	43,749			43,749
Less: core deposit intangible	410			460
Tangible assets	$	5,255,156		$	5,284,730

Ending common shares outstanding	16,859,586			16,855,062

Tangible book value per common share	$	19.08		$	20.22
Tangible common equity/Tangible assets	6.12		%	6.45		%



	(unaudited)
	June 30,			December 31,
	2022			2021











Calculation of allowance / loans receivable, net of PPP-related loans:
Total allowance for credit losses	$	40,543		$	37,588

Total loans receivable	$	3,909,753		$	3,634,792
Less: PPP-related loans	2,287			45,203
Adjusted total loans receivable, net of PPP-related loans (non-GAAP)	$	3,907,466		$	3,589,589

Adjusted allowance / total loans receivable, net of PPP-related loans (non-GAAP)	1.04		%	1.05		%

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NON-GAAP FINANCIAL MEASURES (continued)


	(unaudited)						(unaudited)
	Three Months Ended						Six Months Ended
	June 30,						June 30,

	2022			2021			2022			2021
Calculation of efficiency ratio:
Non-interest expense	$	32,609		$	26,965		$	64,501		$	54,769
Less: core deposit intangible amortization	25			28			50			56
Adjusted non-interest expense (non-GAAP)	$	32,584		$	26,937		$	64,451		$	54,713

Non-interest income	$	8,146		$	7,857		$	17,800		$	16,096

Net interest income	$	46,301		$	38,305		$	88,918		$	77,426
Less: tax exempt investment and loans receivable income, net of TEFRA (non-GAAP)	1,208			1,221			2,535			2,525
Add: tax exempt investment and loans receivable income (non-GAAP) (tax-equivalent)	1,549			1,576			3,252			3,265
Adjusted net interest income (non-GAAP)	46,642			38,660			89,635			78,166
Adjusted net revenue (non-GAAP) (tax-equivalent)	$	54,788		$	46,517		$	107,435		$	94,262
Efficiency ratio	59.47		%	57.91		%	59.99		%	58.04		%


	(unaudited)						(unaudited)
	Three Months Ended						Six Months Ended
	June 30,						June 30,

	2022			2021			2022			2021
Calculation of net interest margin:
Interest income	$	49,741		$	43,528		$	95,995		$	87,823
Interest expense	3,440			5,223			7,077			10,397
Net interest income	$	46,301		$	38,305		$	88,918		$	77,426

Average total earning assets	$	4,967,597		$	4,734,660		$	4,974,964		$	4,622,299

Net interest margin (annualized)	3.74		%	3.25		%	3.60		%	3.38		%

Calculation of net interest margin (fully tax-equivalent basis):
Interest income	$	49,741		$	43,528		$	95,995		$	87,823
Tax-equivalent adjustment (non-GAAP)	306			308			650			631
Adjusted interest income (fully tax-equivalent basis) (non-GAAP)	50,047			43,836			96,645			88,454
Interest expense	3,440			5,223			7,077			10,397
Net interest income (fully tax-equivalent basis) (non-GAAP)	$	46,607		$	38,613		$	89,568		$	78,057

Average total earning assets	$	4,967,597		$	4,734,660		$	4,974,964		$	4,622,299
Less: average mark to market adjustment on investments (non-GAAP)	(37,519)			9,238			(24,101)			13,246
Adjusted average total earning assets, net of mark to market (non-GAAP)	$	5,005,116		$	4,725,422		$	4,999,065		$	4,609,053

Net interest margin (fully tax-equivalent basis) (non-GAAP) (annualized)	3.73		%	3.28		%	3.61		%	3.42		%

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NON-GAAP FINANCIAL MEASURES (continued)


	(unaudited)				(unaudited)
	Three Months Ended				Six Months Ended
	June 30,				June 30,

	2022		2021		2022		2021












Calculation of PPNR: (1)
Net interest income	$	46,301	$	38,305	$	88,918	$	77,426
Add: Non-interest income	8,146		7,857		17,800		16,096
Less: Non-interest expense	32,609		26,965		64,501		54,769
PPNR (non-GAAP)	$	21,838	$	19,197	$	42,217	$	38,753

(1) Management believes that this is an important metric as it illustrates the underlying performance of the Corporation, it enables investors and others to assess the Corporation's ability to generate capital to cover credit losses through the credit cycle and provides consistent reporting with a key metric used by bank regulatory agencies.


	(unaudited)						(unaudited)
	Three Months Ended						Six Months Ended
	June 30,						June 30,

	2022			2021			2022			2021
Calculation of return on average tangible common equity:
Net income available to common stockholders	$	14,363		$	12,915		$	28,533		$	26,021
Average tangible common shareholders' equity	323,490			322,471			331,780			320,395
Return on average tangible common equity (non-GAAP) (annualized)	17.81		%	16.06		%	17.34		%	16.38		%




	(unaudited)				(unaudited)
	Three Months Ended				Six Months Ended
	June 30,				June 30,

	2022		2021		2022		2021
Calculation of non-interest income excluding net realized gains on available-for-sale securities:
Non-interest income	$	8,146	$	7,857	$	17,800	$	16,096
Less: net realized gains on available-for-sale securities	0		0		651		0
Adjusted non-interest income	$	8,146	$	7,857	$	17,149	$	16,096

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ITEM 3

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a financial institution, the Corporation’s primary source of market risk is interest rate risk, which is the exposure to fluctuations in the Corporation’s future earnings resulting from changes in interest rates. This exposure is correlated to the repricing characteristics of the Corporation’s portfolio of assets and liabilities. Each asset or liability reprices either at maturity or during the life of the instrument.

The principal purpose of asset/liability management is to maximize current and future net interest income within acceptable levels of interest rate risk while satisfying liquidity and capital requirements. Net interest income is enhanced by increasing the net interest margin and the growth in earning assets. As a result, the primary goal of interest rate risk management is to maintain a balance between risk and reward such that net interest income is maximized while risk is maintained at an acceptable level.

The Corporation uses an asset-liability management model to measure the effect of interest rate changes on its net interest income. The Corporation’s management also reviews asset-liability maturity gap and repricing analyses regularly. The Corporation does not always attempt to achieve a precise match between interest sensitive assets and liabilities because it believes that an actively managed amount of interest rate risk is inherent and appropriate in the management of the Corporation’s profitability.

Asset-liability modeling techniques and simulation involve assumptions and estimates that inherently cannot be measured with precision. Key assumptions in these analyses include maturity and repricing characteristics of assets and liabilities, prepayments on amortizing assets, non-maturing deposit sensitivity, and loan and deposit pricing. These assumptions are inherently uncertain due to the timing, magnitude, and frequency of rate changes and changes in market conditions and management strategies, among other factors. However, the analyses are useful in quantifying risk and provide a relative gauge of the Corporation’s interest rate risk position over time.

Management reviews interest rate risk on a quarterly basis and reports to the ALCO. This review includes earnings shock scenarios whereby interest rates are immediately increased and decreased by 100, 200, 300 and 400 basis points. These scenarios, detailed in the table below, indicate that there would not be a significant variance in net interest income over a one-year period due to interest rate changes; however, actual results could vary significantly. At June 30, 2022 and December 31, 2021, all interest rate risk levels according to the model were within the tolerance limits of ALCO-approved policy. In addition, the table does not take into consideration changes that management would make to realign its assets and liabilities in the event of an unexpected changing interest rate environment. Due to the current interest rate environment, the 300 and 400 basis point declining interest rate scenarios have been excluded from the table.


	% Change in Net Interest Income
	June, 30, 2022	December 31, 2021
+400 basis points	16.5%	24.6%
+300 basis points	13.2%	18.0%
+200 basis points	10.5%	12.4%
+100 basis points	7.4%	6.3%
-100 basis points	(6.2)%	(6.3)%
-200 basis points	(11.8)%	(10.7)%

At June 30, 2022, the Corporation has approximately $1.9 billion in outstanding loans receivable balances that are rate sensitive over the next twelve months.

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ITEM 4

CONTROLS AND PROCEDURES

The Corporation’s management, under the supervision of and with the participation of the Corporation’s Principal Executive Officer and Principal Financial Officer, has carried out an evaluation of the design and effectiveness of the Corporation’s disclosure controls and procedures as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Securities Exchange Act of 1934 as of the end of the period covered by this report. Based upon that evaluation, management, including the Principal Executive Officer and Principal Financial Officer, have concluded that, as of the end of such period, the Corporation’s disclosure controls and procedures are effective to provide reasonable assurance that all material information required to be disclosed in reports the Corporation files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms.

There was no significant change in the Corporation’s internal control over financial reporting that occurred during the quarter ended June 30, 2022 that has materially affected, or that is reasonably likely to materially affect, our internal control over financial reporting.

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PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

There are no pending legal proceedings to which the Corporation or any of its subsidiaries is a party, or of which any of their properties is the subject, except ordinary routine proceedings which are incidental to the business.

ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors disclosed in Part I, Item 1A of the 2021 Form 10-K.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table provides information with respect to any purchase of shares of the Corporation’s common stock made by or on behalf of the Corporation for the three months ended June 30, 2022.


Period	Total Number of Shares Purchased	Average Price Paid per Common Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or approximate dollar value) of Shares that May Yet Be Purchased Under the Plans or Programs (1)
April 1 – 30, 2022	0	$	0	0	96,606
May 1 – 31, 2022	0	0		0	96,606
June 1 – 30, 2022	0	0		0	500,000

(1) On May 17, 2022, the Corporation's Board of Directors authorized the repurchase of up to 500,000 shares of common stock, provided that the aggregate purchase price of shares of common stock repurchased does not exceed $15 million. The repurchases of common stock, if any, are authorized to be made during the period beginning on June 2, 2022 (the date on which the Company received acknowledgement of the repurchase program from the Federal Reserve Bank) through and including May 17, 2023 through open market purchases, privately negotiated transactions. Depending on market conditions and other factors, these repurchases may be commenced or suspended without prior notice

Additionally, during the quarter ended June 30, 2022, certain employees surrendered shares of common stock owned by them to satisfy their statutory minimum U.S. federal and state tax obligations associated with the vesting of shares of restricted common stock issued under the CNB Financial Corporation 2019 Omnibus Incentive Plan.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS


Exhibit No.						Description

10.1(1)						Letter Agreement, dated April 4, 2022, among CNB Bank and Joseph E. Dell, Jr. (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on April 4, 2022)

31.1						Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2						Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1						Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2						Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS						Inline XBRL Instance Document

101.SCH						Inline XBRL Taxonomy Extension Schema Document

101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF						Inline XBRL Taxonomy Extension Definitions Linkbase Document

101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document

104						Cover Page Interactive Data File (formatted as Inline XBRL and included in Exhibit 101)

(1) Indicates a management contract or compensatory plan.

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

CNB FINANCIAL CORPORATION

(Registrant)

DATE: August 4, 2022

/s/ Joseph B. Bower, Jr.

Joseph B. Bower, Jr.

President and Chief Executive Officer

(Principal Executive Officer)

DATE: August 4, 2022

/s/ Tito L. Lima

Tito L. Lima

Treasurer

(Principal Financial and Accounting Officer)